Morning Commentary: Junk bond rally continues early Wednesday; GameStop brings $400 million

By Paul A. Harris

Portland, Ore., March 2 – High-yield bonds continued to show strength on Wednesday, trailing the phenomenal rally that they staged on Tuesday, a trader said, adding that bonds were up ¼ point to ½ point heading into the New York mid-morning.

“The market has been 90% bid only,” the trader said.

High-yield ETFs staged particularly strong rallies on Tuesday, the source added.

“It’s been risk-on,” the trader asserted, noting that high beta energy names were up 2 to 3 points.

Energy prices have lately been better, and there is cash on the sidelines, the source said.

Bonds of NRG Energy, Inc. were up 4 points. Earlier in the week the company said it has allocated an additional $925 million for debt repurchases in 2016 on top of the $385 million of capital used so far.

Recently priced issues were turning in strong performances on Wednesday, the trader said.

The new HCA Inc. 5¼% first-lien senior secured notes due June 15, 2026 (Ba1//BB+) were 101½ bid on Wednesday.

The upsized $1.5 billion issue (from $1 billion) priced at par on Tuesday.

The new Solera, LLC 10½% senior notes due March 1, 2024 (Caa1/B-) were well above new issue price on Wednesday at 96½ bid.

The extensively rejiggered $1.73 billion deal priced at 95 on Monday.

There was selling in the high-yield ETFs heading into mid-morning. The iShares iBoxx $ High Yield Corporate Bd (HYG) was down 44 cents, or 0.54%, at $80.48 per share. SPDR Barclays High Yield Bond ETF (JNK), at $33.63 per share, was down 22 cents, or 0.65%.

GameStop five-year deal

In the primary market GameStop Corp. is guiding a $400 million offering of five-year senior notes in the mid-to-high 6% yield context, a source said.

The deal is expected to price later this week.

BofA Merrill Lynch is the bookrunner.

The Grapevine, Texas-based electronic game retailer plans to use the proceeds for general corporate purposes, which will likely include acquisitions and, potentially, dividends and stock buybacks.

Big inflows

The dedicated high-yield bond funds saw substantial inflows on Tuesday, the trader said.

High-yield ETFs saw $419 million of inflows on the day.

Actively managed funds saw a whopping $825 million of daily inflows on Tuesday.

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