Morning Commentary: Junk opens flat amid low pre-holiday liquidity; funds see inflows

By Paul A. Harris

Portland, Ore., Nov. 23 – Junk was flat amid low liquidity heading into the extended Thanksgiving holiday weekend, a bond trader said on Wednesday morning.

Although high-yield bonds were better bid on Tuesday, investors appeared be taking a header in front of the holiday, the source added.

High-yield ETFs were substantially lower at mid-morning.

The iShares iBoxx $ High Yield Corporate Bd (HYG) was down 0.47%, or 40 cents, at $85.54 per share. The SPDR Barclays High Yield Bond ETF (JNK), at $36.03 per share, was down 0.46%, or 16 cents.

In the secondary market, the Conduent Inc. paper that priced at a significant discount on Tuesday was trading at a premium at mid-morning on Wednesday.

The Conduent 10½% senior notes due Dec. 15, 2024 (B2/B+/BB) were 103¼ bid at mid-morning.

The $510 million deal priced at 98.672 to yield 10¾%.

It was downsized from $750 million and required structural tweaks, covenant concessions and a far greater amount of yield than the company planned in order to get through the door, sources said.

Presently there are deals in the market that the dealers have to fight in order to get done, and other deals that investors are piling into, the trader said.

In the latter category, the new Tenet Healthcare Corp. 7½% notes due Jan. 1, 2022 (Ba3/B) were 103 3/8 bid Wednesday morning.

The deal, upsized to $750 million from $500 million, priced at par on Nov. 16 and played to a whopping $5.6 billion of orders, sources said.

Quiet primary market

The primary market was quiet ahead of the holiday.

Only one deal is on the active calendar.

Source Energy Services is in the market with a C$130 million offering of unrated senior secured first-lien notes via left bookrunner BMO. The offering is set to price in the week ahead.

However the post-Thanksgiving week could start with a bang, according to a trader, who is looking for as many as three deal announcements on Monday.

Tuesday inflows

The cash flows of the dedicated high-yield bond funds were positive on Tuesday, the trader said.

High-yield ETFs saw $414 million of inflows on the day.

Actively managed funds saw $10 million of inflows on Tuesday.

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