Morning Commentary: Market volatility roils junk; trader sees heavy ETF selling; LeasePlan on deck

By Paul A. Harris

Portland, Ore., Feb. 11 – Volatility in the global capital markets continues to take a toll on junk bonds, sources said, as trading got underway in the Thursday New York morning.

“It’s crappy out there, but maybe not as crappy as you'd think,” said a portfolio manager, who added that the CDX HY 25 index was down 5/8 point and cash bonds opened as much as a point lower but were off their lows.

Shortly after that, a trader reported seeing heavy selling among high-yield ETFs.

The ETFs were sharply lower. The iShares iBoxx $ High Yield Corporate Bd (HYG) was down 83 cents, or 1.09%, at $75.27 per share. SPDR Barclays High Yield Bond ETF (JNK), at $31.34 per share, was down 37 cents, or 1.17%.

Everything is getting crushed, the trader said, adding that the yield on 10-year Treasuries fell as low as 1.53%, overnight but had recovered to 1.62% in the early going on Thursday.

Swooping Treasury yields represent a certain amount of apprehension with respect to risk, the portfolio manager conceded.

With the barrel price of West Texas Intermediate crude oil for March delivery having fallen to $26.75, energy was taking an outsized hit, the trader said.

The bonds of U.S. energy companies were down around 4 points on the day.

These include the bonds of Oasis Petroleum Inc. and Whiting Petroleum Corp., the trader said.

LeasePlan on deck

Vehicle leasing company LeasePlan Corp. NV is on deck with a €1.55 billion equivalent three-part offering of senior secured notes (B1/BB+/BB-).

The deal includes euro-denominated five-year notes talked to yield 7½% to 7¾% and dollar-denominated five-year notes talked to yield in the 8¼% area.

The dollar-denominated notes, talked 62.5 basis points behind the euro-denominated notes, are shaping up slightly wide of the 50 bps spread that circulated in earlier guidance, according to a sellside source.

LeasePlan is also selling euro-denominated seven-year notes talked to yield 8% to 8¼%.

The guidance on the seven-year notes shapes up 50 bps behind that of the euro-denominated five-year notes, a greater concession than the issuer initially contemplated, according to the sellsider, who said that early guidance had the seven-year notes coming about 30 bps behind the euro-denominated five-year piece.

The buyout deal has seen some pushback from investors because of the volatility in the European financial space and intense pressure on bank stocks, as well as recent negative headlines about the fortunes of Deutsche Bank, the sellsider remarked.

The euro-denominated tranches are thought to be faring better than the single dollar-denominated tranche, a trader said on Thursday morning.

An international roadshow was scheduled to end Thursday.

Wednesday outflows

The cash flows of the dedicated high-yield funds were negative on Wednesday, according to a portfolio manager.

High-yield ETFs saw $131 million of outflows on the day.

Actively managed funds sustained $30 million of outflows on Wednesday.

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