Morning Commentary: Junk trades higher for second day in a row; new TreeHouse bonds up 2¾ points

By Paul A. Harris

Portland, Ore., Jan. 22 – High-yield bonds were enjoying a second consecutive session in the sun following turbulence that rocked the markets earlier in the week, sources said.

Cash bonds were up half a point heading into the mid-morning, according to a trader based on the East Coast of the United States.

Some names – specifically those from the battered energy sector – were seeing more substantial gains and were up as much as 3 to 4 points, the source said.

Beaten up names in the telecom sector, in particular Frontier Communications Corp. and Sprint Corp., were up 2 to 3 points.

The Sprint 7 7/8% senior notes due Sept. 15, 2023 were 64¼ bid on Friday morning, up from 62-handle trading on Thursday. Sprint’s 7 5/8% notes due Feb. 15, 2025 were up 2 points.

ETFs had been rallying heading into the mid-morning.

The iShares iBoxx $ High Yield Corporate Bd (HYG) was 75 cents better, or 0.97%, at $78.39 per share. SPDR Barclays High Yield Bond ETF (JNK), at $32.77 per share, was up 33 cents, or 1.02%.

ETFs were actively looking for offers on Friday morning, according to a trader who tracks them.

The freshly minted TreeHouse Foods, Inc. 6% senior notes due Feb. 15, 2024 (Ba3/BB) were up 2¾ points on Friday at 102¾ bid, 103¼ offered, a trader said.

The $775 million deal, backing the merger of TreeHouse and ConAgra Foods Inc., priced at par on Thursday, playing to a book said to have been eight-times oversubscribed, according to a portfolio manager.

Primary: crossed fingers

Only one deal was on deck at the Friday open.

GCP Applied Technologies Inc. talked its $525 million offering of seven-year senior notes (B1/B+) to yield 9½% to 9¾% on Thursday.

The Goldman Sachs-led deal appears to be all set and is expected to price Friday, a trader said.

The roadshow wrapped up on Thursday, and the deal underwent a second round of covenant changes, market sources said.

Elsewhere all was quiet on the new issue front, with dealers alluding to possible activity ahead provided the present stability is maintained. However no one was volunteering any issuer names.

One other merger deal besides the above-mentioned TreeHouse transaction was expected to show up this week, according to a buyside source, who declined to identify the issuer.

That deal appears to have been pushed into the week ahead.

Mixed flows

The cash flows of the dedicated high-yield bond funds were mixed on Thursday, according to a trader.

High-yield ETFs saw $191 million of inflows on the day.

However actively managed funds sustained $300 million of outflows on Thursday.

Those numbers trailed Thursday’s news that the dedicated junk funds sustained $2 billion of outflows during the week to Wednesday’s close.

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