Morning Commentary: Yield-chasers push Oregon Tool bonds to premium; Castlelake on deck

By Paul A. Harris

Portland, Ore., Oct. 8 – Junk opened unchanged in light pre-holiday trading with the extended Columbus Day holiday weekend ahead thinning the market's liquidity, sources said.

With stock indexes narrowly into the green approaching mid-morning, the iShares iBoxx $ High Yield Corporate Bd (HYG) share price was 4 cents lower, down 0.05%, at $86.98.

Among recent issues, the Oregon Tool Inc. 7 7/8% senior notes due October 2029 (Caa1/CCC+) became prey to investors chasing yield, according to a trader, who had them par ¼ bid, par ¾ offered, down from Thursday evening highs of 101.

The downsized $300 million issue (from $350 million) came at par on Thursday, at the tight end of yield talk but well wide of initial guidance in the high 6% area.

Orders had lagged at that initial guidance, a trader said, adding that the company was able to attract interest among investors that amounted to just around $100 million, well below deal size.

At 8%, books built to $500 million, the trader added.

Meanwhile the new Harbour Energy plc 5½% senior notes due 2026 (BB-/BB) were trading right around new issue price, a portfolio manager said.

In spite of a recent rash of negative economic and geopolitical headlines, and sizable recent upward moves in rates, investors continue to maintain interest in risk assets, the manager asserted.

The $500 million Harbour Energy issue priced at par on Thursday.

Looking a little further back, the Sunoco LP/Sunoco Finance Corp. 4½% senior notes due April 2030 (B1/BB-/BB) were par ¼ bid, par ½ offered on Friday morning, the manager said, adding that better-quality high-yield bonds appear to be faring just fine.

The $800 million issue priced at par last Tuesday.

The setting for bonds in the energy sector could hardly be more positive.

At mid-morning on Friday, the barrel price of West Texas Intermediate crude oil for November delivery hovered just below the $80-mark, at $79.99, up $1.69 (2.16%) on the day.

The new issue market failed to generate any news on a pre-holiday Friday.

One deal remained in the market as business to clear ahead of the weekend.

Castlelake Aviation Ltd. ran a roadshow this past week for its $420 million offering of 5.5-year senior notes (B2//BB).

Talk in the 5% area, atop initial guidance, surfaced Thursday.

The deal is set to price on Friday.

Thursday inflows

The dedicated high-yield bond funds saw $670 million of net daily inflows on Thursday, according to a market source.

High-yield ETFs saw $580 million of inflows on the day.

Actively managed high-yield funds saw $90 million of inflows on Thursday, the source said.

News of Thursday's daily flows followed a Thursday report that the combined funds saw $294 million of net inflows for the week to the Wednesday, Oct. 6 close, according to the Refinitiv Lipper Fund Flow Report Newsline.

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