Morning Commentary: Charter, SAIC climb in trading; junk continues to outperform stocks

By Paul A. Harris

Portland, Ore., March 5 – Junk opened weaker on Thursday – down Ό point to ½ point at the open, according to market sources.

However, with the Dow Jones industrial average down 2.5% at mid-morning, high-yield bonds continue to vastly outperform the stock market, a trader asserted.

High-quality bonds are definitely well-bid, the trader said, explaining that with the 10-year Treasury yielding below 1% (0.942% at press time), double-B junk bonds that priced on the tights within the past few months – some of them yielding in the low 4% or even high 3% ranges – suddenly look attractive.

Some of the bonds priced Wednesday were turning in notable performances in the secondary market on Thursday, the trader said.

The new Science Applications International Corp. senior notes due April 1, 2028 (B1/BB-) were 102 1/8 bid on Thursday.

The $400 million issue priced at par on Wednesday following a roadshow. Pricing came tighter than talk.

Meanwhile, notes priced in a Wednesday double-decker from Charter Communications Inc. were turning in mixed Thursday performances.

The new CCO Holdings LLC/CCO Holdings Capital Corp. 12-year paper, the 4½% senior notes due May 2032 (B1/BB/BB+), were 101 3/8 bid at mid-morning, off earlier highs of 101½ bid, the trader said.

The notes came in a $1.4 billion tranche and priced at par.

Meanwhile the add-on to the 4½% notes due August 2030 (B1/BB/BB+) were perched on top of their issue price at 102.5 bid, the trader said.

The $1.1 billion tap came at 102.5, also on Wednesday.

Away from freshly minted paper, bonds of Intelsat were lower on Thursday, the trader said.

The Intelsat Connect Finance SA (Intelsat SA) 9½% senior notes due February 2023 were 55Ύ bid on Thursday morning, down half a point and “super-weak,” the source said.

Intelsat's shares dropped precipitously last week on news that an expected windfall from the upcoming public re-auction of C-band spectrum licensed to the company by the U.S. government would not likely materialize following a Federal Communications Commission decision to cap the proceeds going to the C-Band Alliance – a group of satellite communications companies of which Intelsat is a member – at a fraction of the re-auction's anticipated take.

Intelsat had planned to use the windfall from the re-auction to address its mountain of debt.

Fund flows

The dedicated high-yield bond funds saw $483 million of net inflows on Wednesday, according to a market source.

All of that, and more, flowed into high-yield ETFs, which saw $713 million of inflows on the day.

The actively managed high-yield funds, on the other hand, sustained $230 million of daily outflows on Wednesday, the source said.

As the market anticipates a weekly report on the cash flows of the various capital markets segments, expected late Thursday from Lipper US Fund Flows, the combined funds are tracking $4.6 billion of net outflows for the extremely volatile week that concluded with Wednesday's close, according to the market source.

Should it materialize it would be the biggest cash outflow from junk since October 2018, the source added.

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