Junk seen quiet during shortened pre-holiday session; energy names mixed even as crude gains

By Paul Deckelman and Paul A. Harris

New York, Dec. 24 – The high-yield market went home for the holidays on Thursday on a very quiet note, with little real activity seen during an abbreviated session ahead of Friday’s scheduled full market close.

Traders said that though not much was going on, Junkbondland had a better tone, continuing the positive momentum seen over the previous two sessions.

Energy names, which had been mostly better over the last two sessions in line with a sharp rise in previously beleaguered world crude oil prices, were seen mixed on Thursday even as crude continued to gain. Traders cautioned, however, that with few large-sized trades taking place, any moves were probably not really representative.

Gainers from the sector included Chesapeake Energy Corp., SandRidge Energy, Inc. and Newfield Exploration Co. Downsiders included Oasis Petroleum Inc. and Transocean Ltd.

Away from the energy sphere, Ball Corp.’s five-year notes that came to market at the beginning of the month were relatively active and firmer. AK Steel Holding Corp. rose for a second straight session, aided by news of U.S. tariffs slapped on steel products coming from rival China.

There was nothing seen going on in the primary market, which has shut down for the remainder of the year barring anything unforeseen.

That meant that no new dollar-denominated, fully junk-rated paper from domestic or industrialized-country issuers came to market during the week, according to data compiled by Prospect News. That was unchanged from the goose egg seen the previous week, ended Dec. 18.

The week before that, ended Dec. 11, had seen the last official junk bond deal of the year, a single-tranche, $225 million offering.

This week’s lack of any new paper left the year-to-date issuance total where it had been at the close the previous two Fridays, at $262.86 billion in 414 tranches, running about 16.2% behind the pace seen a year earlier, when $313.99 billion of junk bonds had priced in 586 tranches by this point on the calendar, according to the data.

Statistical measures of junk market performance were on track to end higher for a third consecutive session on Thursday.

The indicators were seen ending the week higher versus where they had finished out last week on Friday, Dec. 18, when they had been mixed versus the previous week. The indicators had been lower all around the week before that, ended Dec. 11.

Mixed flows

The high-yield primary market remained shuttered on Christmas Eve and is expected to remain that way until the new year.

The cash flows of the dedicated high-yield funds were mixed on Wednesday, the most recent session for which daily numbers were available at press time, according to a trader.

Exchange-traded funds saw $214 million of inflows on the day.

Actively managed funds sustained $285 million of outflows on Wednesday.

Bank loan funds, meanwhile, saw $205 million of outflows on the day.

Quiet, shortened session

While nothing was going on in the primary arena Thursday, the secondary market was not much better.

The Securities Industry and Financial Markets Association had formally recommended a 2 p.m. ET early close ahead of Friday’s full Christmas Day market shutdown, but the reality was that, as one trader put it, “for all intents and purposes, today’s market was over yesterday.”

If shops were manned at all, numerous market participants made for an early exit hours before the official abbreviated closing time.

The result, another trader said, was “it was pretty quiet, nothing standing out.”

Another market source called the pace “very slow, not much happening.”

That having been said, the overall tone for what action there was seemed to be firmer, riding the momentum of the previous two sessions and helped by continued gains in oil prices.

“If more people were here, I believe the bias would be to buy,” said yet another trader, adding that with just 15% to 20% of traders at work on the day before Christmas, there was practically nothing going on, “just small odd-lot bids.”

Energy names mixed

Crude oil prices were better across the board for a second consecutive session, with the domestic benchmark grade, West Texas Intermediate, seen up for a fourth session in a row.

February-contract WTI crude gained 60 cents, or 1.60%, in trading on the New York Mercantile Exchange, going home at $38.10. WTI was up 9.7% this week, its biggest weekly gain since August, helped in no small part by statistics showing a sharper-than-expected decline of nearly 6 million barrels in U.S. crude stockpiles.

It was also helped by congressional approval of a measure allowing U.S. crude to be exported for the first time in 40 years, lifting a ban imposed in the wake of 1970s-era oil and gasoline shortages in the United States.

The international Brent benchmark for February was up for a second straight session, gaining 53 cents, or 1.4%, to settle at $37.89 a barrel on the London ICE Futures Exchange.

Energy names were mixed on Thursday, but in very light trading, a market source cautioned.

Gainers included Chesapeake Energy, whose 6 5/8% notes due 2020 were seen up more than 2 points at 29½ bid.

SandRidge’s 7½% notes due 2021 were quoted at 11 bid, up 1¼ point, while higher-quality producer Newfield’s 5¾% notes due 2022 were seen ½ point better at just under 89 bid.

On the downside, Oasis Petroleum’s 6 7/8% notes due 2022 were off by ¼ point at 63½ bid, though its volume of over $6 million made it the busiest high-yield issue on the day.

The company’s 6½% notes due 2021 were little changed on the day at 64¼ bid, with over $2 million traded – but they were up more than 2 points from levels seen earlier in the week in round-lot trading.

International offshore drilling contractor Transocean’s 7 1/8% notes due 2021 retreated by 7/8 point, ending the day at 66 3/8 bid, with around $3 million traded.

California Resources Corp.’s 8% notes due 2022 were off by ¼ point at 52 bid.

Ball notes seen better

Away from the energy sector, Ball’s 4 3/8% notes due 2020 were among the more active issues of the day, with over $2 million changing hands.

The notes were seen up 1/8 point, going home at 102 5/8 bid.

Broomfield, Colo.-based Ball, the world’s leading manufacturer of metal beverage cans and food containers, sold $1 billion of those bonds as part of a three-part offering, also including two tranches of euro-denominated notes, that priced at par on Dec. 2.

The bonds have moved steadily upward since then.

AK improves again

For a second consecutive session, AK Steel’s 7 5/8% notes due 2020 were seen on the upside on Thursday.

A trader quoted them at 43¼ bid, up 1 point on the session.

That added to the gains in the West Chester, Ohio-based integrated steel manufacturer seen on Wednesday on the news that the U.S. Commerce Department will impose a 256% tariff on imports of non-corroding steel products from China.

Those imports, and imports from other lower-cost foreign producers, have eroded AK’s sales of one of its key steel alloy products.

On the news Wednesday, more than $7 million of the notes traded, making it one of the more active issues in an otherwise quiet session. The bonds jumped to around 42 bid – up a point on a round-lot basis and up almost 3 points from Tuesday’s close.

In making its announcement, the federal agency said the Chinese were selling their steel product at unfairly low levels, necessitating the tariff.

The agency also slapped smaller tariffs on similar steel products from India, South Korea and Italy.

Indicators trending higher

Statistical measures of junk market performance were on track to end higher for a third consecutive session on Thursday; they had turned higher on Tuesday and had again firmed on Wednesday. Those upturns followed a mixed session on Monday and, before that, lower across the board sessions last Thursday and Friday.

Including the two straight higher sessions before that, Thursday was the fifth positive session in the last eight trading days.

The indicators were seen ending the week higher versus where they had finished out last week on Friday, Dec. 18, when they had been mixed versus the previous week. The indicators had been lower all around the week before that, ended Dec. 11.

This week’s higher finish would be the first such stronger week in two months – since the week ended Oct. 23.

The KDP High Yield Daily index gained 10 basis points on Thursday, ending at 63.62, its third consecutive rise. It had shot up by 31 bps on Wednesday and by another 24 bps on Tuesday, which had been its first gain after three straight losses.

Its yield held steady at 7.39%, where it had ended on Wednesday, when it had dropped by 13 bps, its second successive narrowing after three straight widenings. On Tuesday, the yield came in by 12 bps.

Thursday’s levels compared favorably with the 63.16 index reading and 7.56% yield at which it had closed last Friday.

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