Morning Commentary: Junk market gyrates amid rate concerns; high-yield outflows continue

By Paul A. Harris

Portland, Ore., Feb. 11 – Junk opened lower on Friday, with traders differing on the magnitude of the drop.

A New York-based trader had the index down 1/8 point at the open.

Another trader, elsewhere on the East Coast of the United States – this one focused on crossover names – saw high yield open Friday half a point to a full point lower.

This trader, who was plowing through a heap of bids-wanted-in-competition (BWIC) lists at mid-morning, characterized the past five days in the junk market as the most exhausting week in a year.

Bonds improved when the stock indexes opened higher, the source recounted.

However, the markets' reflexive response to the release of a negative Michigan Consumer Sentiment report, on Friday morning, was to sell, sending bond prices back south, the trader added.

High-yield investors who braved the waters during the turbulence of the past week were faring decently, for the most part, at mid-morning, a sellside source said.

The NCL Corp. Ltd. 7¾% senior notes due February 2029 (Caa1/B-) were 101 1/8 bid, 101½ offered. The $600 million tranche priced on Thursday at par, alongside a $1 billion tranche of 5 7/8% senior secured notes due February 2027 (B1/B+).

The NCL secured notes, which also came Thursday at par, were 99¾ bid, par offered on Friday morning.

The overall $1.6 billion two-part deal from the Miami-based cruise line was heard to be well oversubscribed across both tranches.

Elsewhere the Studio City Co. Ltd. 7% senior secured notes due February 2027 (Ba3/B+) last traded at par 7/8, the source said.

The Macau-based gaming and entertainment company priced $350 million of those notes at par on Wednesday in a deal that upsized from $300 million, with a heavy following among Asian high-yield investors.

There was not a lot of activity in the new Studio City notes among U.S.-based junk bond accounts, the sellsider noted.

Outflows

The dedicated high-yield bond funds sustained $884 million of net daily outflows on Thursday, according to a market source.

High-yield ETFs saw $863 million of outflows on the day.

Actively managed high-yield funds sustained $21 million of outflows on Thursday.

News of Thursday's daily flows follows a Thursday report that the combined funds saw $1.96 billion of net outflows on the week to the Wednesday, Feb. 9 close, according to Refinitiv Lipper.

The most recent weekly outflow extends the negative cash flows of the high-yield bond funds over the past five weeks to $13.2 billion, the market source said.

Lest there be any doubt about the level of concern over inflation and higher rates among investors in the leverage markets, during the most recent week the dedicated bank loan funds saw a record $2.29 billion of net inflows, the source noted.

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