Morning Commentary: Junk rallies on Wednesday amid $1.6 billion offer-wanted-in-competition

By Paul A. Harris

Portland, Ore., Oct. 7 – High-yield bonds were ripping into mid-morning, according to a portfolio manager.

ETFs were on a buying spree, the source said, adding that a $1.6 billion offer-wanted-in-competition (OWIC) list had been submitted.

ETF shares were rallying into mid-morning.

iShares iBoxx $ High Yield Corporate Bd (HYG) was 75 cents higher at $84.64 per share heading into the East Coast mid-morning.

SPDR Series Trust - SPDR Barclays High Yield Bond ETF (JNK) was 28 cents higher at $36.11 per share.

The ETFs saw a whopping $1.02 billion of inflows on Tuesday, the manager said.

However the Tuesday flows of the dedicated high-yield funds were mixed, with asset managers sustaining $35 million of outflows, on the session.

Sprint 7¼% notes rocket

To quantify Wednesday’s burst of buying, the manager pointed to Sprint Corp.’s 7¼% senior notes due September 2021, a $2.25 billion issue.

Those bonds were trading at 89 on Wednesday morning, the source said.

On Friday they were 81 bid, 82 offered.

“You couldn't give the paper away on Friday,” the manager remarked.

Meanwhile recent “juiced” issues – bonds priced with eye-popping concessions to late September market turbulence – were continuing to rally on Wednesday morning.

Olin Corp.'s recently priced senior notes (Ba1/BB+), which came on Sept. 25 in a $1.22 billion two-part deal – the 9¾% eight-year notes and the 10% 10-year notes – were both 106¼ bid, 107 offered on Wednesday. A trader had that paper at 103½ bid, 104½ offered on Monday.

The Olin bonds, which priced at par in a downsized deal that was in the market during the height of the recent turbulence, actually traded below par for a brief time last week, sources said.

Altice/Cablevision Systems Corp.’s 10 1/8% 7.25-year senior unsecured notes (B2/B) were 105 bid, 105¾ offered on Wednesday. A trader had them at 103½ bid, 104½ offered on Monday.

Those notes also priced at par in a $1.8 billion tranche on Sept. 25 – the same day as Olin brought its deal – as part of a three-tranche transaction that was sized at $4.8 billion.

SunOpta on deck

In the primary market, SunOpta Foods Inc. is marketing a $330 million offering of senior secured second-lien notes due 2022 (B3/B), which are expected to price Wednesday afternoon.

The acquisition financing deal was talked at a to-be-determined discount to yield 10% on Tuesday.

BMO, Jefferies and Rabobank are the joint bookrunners.

Elsewhere the primary market was quiet.

However given the big charge in the market on Wednesday morning, that could soon change, the portfolio manager said.

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