Morning Commentary: Post-Brexit high-yield market opens to ‘orderly chaos’; buyers step in

By Paul A. Harris

Portland, Ore., June 24 – The junk bond market opened to “orderly chaos” on Friday, trailing the historic Brexit vote overnight, which saw U.K. voters elect to exit the European Union, a New York-based trader said.

High-yield bonds were down 1¼ points at mid-morning, having recovered from being down as much as 1¾ points earlier in the day, the trader said.

“It’s a summer Friday,” the trader said, adding that had the Brexit news surfaced on a Tuesday or Wednesday selling might have been more aggressive.

Investors were attempting to do some opportunistic buying on Friday morning, the trader said, adding that there were not a lot of offerings out there.

High-yield ETFs were generally quiet, the source noted, and mentioned seeing a single offers-wanted-in-competition (OWIC) list from a guy who did not appear to be in a rush.

ETF share prices were sharply lower at mid-morning. The iShares iBoxx $ High Yield Corporate Bd (HYG) was down 1.11%, or 94 cents, at $83.70 per share. The SPDR Barclays High Yield Bond ETF (JNK), at $35.22 per share, was down 1.16%, or 42 cents.

Among on-the-run high-yield names, the Sprint Corp. 7 7/8% senior notes due Sept. 15, 2023 were 1 to 2 points lower on the day at 80½ bid, 81½ offered, the trader said, adding that they were 82¼ bid on Thursday.

Among names of interest to buyers, the Sun Products Corp. 7¾% due March 15, 2021 were being prized by yield-to-call players and were up 6 to 7 points at mid-morning at 103 bid, 103½ offered, whereas they traded with a 97-handle on Thursday. The move came on news that Sun Products is being acquired by German consumer products group Henkel.

Energy names slide with oil

The Brexit vote took a toll on crude oil prices, sources said.

The barrel price of West Texas Intermediate crude oil for August 2016 delivery was down $2.15, or 4.29%, at $47.96 per barrel at mid-morning.

With that news high-yield energy names were down 2 to 3 points, the trader said.

The California Resources Corp. 8% senior secured second-lien notes due Dec. 15, 2022 down 4 points at 68 bid. Those bonds were 72 bid, 73 offered on Thursday.

Europe retraces from wides

The European high-yield market appeared to be stepping back from the post-Brexit brink, a London-based debt capital markets banker said.

The iTraxx Euro Crossover index was 72 basis points wider at the New York mid-morning, well off its post-Brexit wides of 110 bps.

“It’s still a big move,” the banker noted, adding that the index was 397 bps bid at mid-morning Friday, versus 320 bps bid on Thursday.

At its tightest the present series of the index was 291 bps bid in mid-April, the source added.

Meanwhile the European primary market was sidelined by post-Brexit volatility, the banker said, adding that there had been six to 10 deals in the pipeline, awaiting the results of the historic vote.

With the “exit” vote having materialized, the market will now have to wait and see, the source said.

Likewise the dollar-denominated primary market was silent on Friday.

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