Morning Commentary: Wednesday's worse-than-expected CPI report sends junk ¼ point lower

By Paul A. Harris

Portland, Ore., July 13 – The high-yield bond market dropped ¼ point following a Wednesday report from the U.S. Department of Labor that its Consumer Price Index (CPI) rose a whopping 9.1% over the last 12 months, according to a trader in the New York City area.

Market liquidity remains low, the source said.

With the Dow Jones industrial average down 0.67% at midmorning the iShares iBoxx $ High Yield Corporate Bd (HYG) share price was essentially flat, up two cents, or 0.03%, at $74.79.

The trader, who closely monitors the activities of the high-yield ETFs, said that the volume of bids-wanted-in-competition (BWIC) lists – many of which come from the ETFs – was notably low in the face of Wednesday's CPI print which is expected to propel the Federal Reserve to continue to raise interest rates aggressively, possibly sending the U.S. economy into a recession later this year.

ETF activity on days when positive news sparks rallying in the markets – typically generating offers-wanted-in-competition (OWIC) lists – has also been uncharacteristically muted, the trader remarked.

Trading activity remains light, the source said.

There were no new issue updates in the early going, on Wednesday.

The active forward calendar features just one deal.

Cornerstone Building Brands, Inc. plans to kick off $1.01 billion of debt offerings (B2/B) backing the buyout of the company by Clayton, Dubilier & Rice at 2 p.m. ET on Wednesday.

The deal will be comprised of a $600 million tranche of Camelot Return Merger Sub Inc. six-year senior secured notes and a $410 million six-year first lien term loan, both of which will be presented to investors on a roadshow running through Tuesday.

Elsewhere the market continues to anticipate the announcement of a deal backing the LBO of Tenneco Inc., by Apollo Global Management, Inc.

Pegasus Merger Co., an affiliate of Apollo, began pre-marketing $2 billion of secured notes and $1 billion of unsecured notes last week, sources say.

The deal is expected before the end of July, and might still materialize this week, they add.

Meantime just one deal has cleared the dollar-denominated new issue market since the conclusion of the Independence Day holiday weekend, on July 5.

The Garden SpinCo Corp. (Neogen Corp.) 8 5/8% senior notes due July 2030 (B2/BB) continue to maintain the premium to which they traded a week ago: 102 bid, 102 ½ offered, according to the trader who added that they remained unchanged on Wednesday morning.

The $350 million issue priced July 6 at par.

Mixed Tuesday fund flows

The daily cash flows of the dedicated high-yield bond funds were mixed on Tuesday, according to a market source.

Actively managed high-yield funds sustained $172 million of outflows on the day.

High-yield ETFs were positive on the day, posting a comparatively modest $25 million of inflows on Tuesday, the source said.

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