Morning Commentary: Junk slightly firmer on oil price strength; ETFs see big daily cash outflows

By Paul A. Harris

Portland, Ore., May 5 – High-yield bonds were a touch firmer on Thursday morning on the back of strengthening crude oil prices, sources said.

West Texas Intermediate crude oil for June 2016 delivery was up $1.62, or 3.7%, at $45.40 per barrel heading into the New York mid-morning.

In the energy space, the bonds of Chesapeake Energy Corp. rose sharply on news that the company’s first-quarter loss narrowed as it posted a smaller asset write-down than a year earlier, and reports that Chesapeake, in an effort to improve its balance sheet, plans to sell assets to Newfield Exploration Co.

The Chesapeake Energy 8% senior secured second-lien notes due Dec. 15, 2022 were 68¼ bid on Thursday morning, up from 59 bid, 60 offered on Wednesday, said a trader, who was marking the paper 6 points higher on the news.

Both of Wednesday’s new issues were performing well in the secondary market.

The new PTC, Inc. 6% senior notes due May 15, 2024 (Ba3/BB-) were 102 bid, 102½ offered heading into the mid-morning. The $500 million issue priced at par on Wednesday.

The Mobile Mini, Inc. 5 7/8% senior notes due July 1, 2024, which came at par on Wednesday in a $250 million issue, were trading on either side of 102, the trader said.

ETF outflows continue

The cash flows of the high-yield ETFs continued to be strongly negative on Wednesday.

The ETFs saw $737 million of outflows on the day, a portfolio manager said.

Of that amount, $669 million came from HYG.

Since last Friday, the ETFs have seen a total of $2.6 billion of aggregate daily outflows, the manager said, and added that the total amounts to approximately 1/3 of the inflows that the high-yield ETFs have seen since the middle of February.

“There was a lot of timer money in the ETFs because people thought that the market was cheap,” the manager remarked.

HYG was firmer on the morning. The iShares iBoxx $ High Yield Corporate Bd (HYG) was up 12 cents, or 0.15%, at $82.77 per share. SPDR Barclays High Yield Bond ETF (JNK), at $34.76 per share, was up 6 cents, or 0.17%.

Nevertheless the ETFs were still better sellers, attempting to raise cash, on Thursday morning, a trader said.

Away from the ETFs, high-yield asset managers saw flat to slightly positive flows on Wednesday, with $10 million of inflows on the day.

Travis Perkins launches

It was all quiet in the dollar-denominated primary market on Thursday morning, sources said.

In London, Travis Perkins plc launched a £300 million offering of senior notes due Sept. 7, 2023 (BB+) with a 4½% yield.

The deal is playing to orders in excess of £800 million and is expected to price shortly.

Earlier price talk was 4 5/8% to 4¾%, a market source said.

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