Morning Commentary: Junk opens post-holiday week lower; cash inflows strong and steady

By Paul A. Harris

Portland, Ore., Nov. 28 – High-yield bonds opened the post-Thanksgiving week down 1/8 of a point to ¼ of a point, traders said.

Although the investment-grade bond market was quick to regain its stride on Monday morning, the speculative-grade market was off to a much slower start, with no new deal announcements and muted trading activity as the week got underway, according to a high-yield bond trader in New York.

The trader had the market ¼ point lower at mid-morning.

At that time, with the Dow Jones industrial average down 0.5%, the iShares iBoxx $ High Yield Corporate Bd (HYG) share price was 0.28% lower, down 21 cents at $74.80.

Among recent issues, the United Rentals (North America), Inc. 6% first-lien senior secured notes due Dec. 15, 2029 (Baa3/BBB-) were ¼ of a point lower at par ¼ bid, par ½ offered, the trader said.

Late last week they were par ½ bid, par ¾ offered, the source said.

Notwithstanding the investment-grade ratings on both sides of the split, the bonds are being traded on the high-yield desk, the trader said.

The $1.5 billion issue priced at par to yield 5.999% on Nov. 15.

The more recently minted Sabre GLBL Inc. 11¼% senior secured notes due December 2027 (Ba3/B) were unchanged at 101 bid, 101½ offered, according to the trader.

The $555 million issue priced at 98.134 to yield 11¾% on Nov. 21.

With no new high-yield deals announced on Monday, the active new issue calendar continues to host a single deal.

Pegasus Merger Co./Tenneco Inc. is believed to still be in the market with a $1 billion offering of six-year senior secured notes (B2/B-), backing the buyout of Tenneco by Apollo, the trader said.

There has been very little news on the deal since it was announced at the very beginning of the month.

The buyout itself was completed on Nov. 17, with the investment banks ponying up their committed financing even though the bonds and the $1.4 billion term loan continue to await syndication.

With the bond deal struggling, bond investors had been on the lookout for covenant concessions to be announced during the run-up to Thanksgiving, sources say.

However, there were no such announcements, the trader said.

Pending such accommodations, the debt appears to be in limbo, market sources say.

Fund flows

The dedicated high-yield bond funds saw $303 million of net daily cash inflows on Friday, according to a market source.

High-yield ETFs saw $233 million of inflows on the day.

Actively managed high-yield funds saw $70 million of inflows on Friday, the source said.

News of Friday’s inflows trails a report that the combined funds saw $2.207 billion of net inflows during the week to the Wednesday, Nov. 23 close, according to Refinitiv Lipper.

That big weekly inflow to the combined funds caps a $13.5 billion stretch of inflows over the past five weeks, the second-largest amount on record for such an interval, according to the market source.

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