Morning Commentary: New Enova bonds trade above new issue price; funds see Friday outflows

By Paul A. Harris

Portland, Ore., Aug. 21 – The high-yield market opened flat on Monday amid thin trading volume, a trader said.

With headline news failing to provide any catalyst, and liquidity thin, it may be a quiet run-up to Labor Day, nearly two weeks hence, the source advised.

Trades can still be accomplished, the source said, but added that those attempting to move anything sizable might reasonably expect to face resistance, given the present illiquid circumstances.

High-yield ETFs were flat to slightly positive. The SPDR Blmbg Barclays High Yield Bd ETF (JNK) was up a penny, or 0.03%, at $36.82 per share at midmorning.

Amid heaviness in the energy sector, with the barrel price of West Texas Intermediate crude oil for September 2017 delivery down 50 cents, or 1.03%, at $48.01, high-yield energy names were flat, the trader said.

The new Enova International Inc. 8½% senior notes due Sept. 1, 2024 (Caa1/B-), the most recent issue to clear the market, were par ½ bid on Monday morning.

The $250 million deal, helmed by Jefferies, priced at par on Friday.

Some heaviness persists

Among some of the conspicuous late-summer new issues – high profile deals that attracted attention because of the issuer names and/or deal sizes – heaviness in the secondary market persists, the trader said.

The Staples Inc. 8½% senior notes due Sept. 15, 2025 (B3/B-) were 97¼ bid, 97¾ offered on Monday morning.

On Friday those bonds were seen at 97 5/8 bid, 98 1/8 offered.

Staples priced the bonds a week ago at par in a downsized $1 billion issue, decreased from $1.3 billion after having been earlier decreased from $1.6 billion.

The Tesla, Inc. 5.3% senior notes due Aug. 15, 2025 (B3/B-) were 97½ bid, 98 offered Monday morning.

They were spotted last Friday at 97¼ bid, 97¾ offered.

The upsized $1.8 billion (from $1.5 billion) issue priced at par on Aug. 11.

Although there might be name-specific reasons for the poor secondary market performances of some recent issues, others suffer from being done in executions where pricing left little room for improvement in the aftermarket, and from allocations that came near to or equaled total orders, weakening secondary market demand, sources say.

Enter the hedge funds, which have been selling and shorting some of the deals in question, the trader said on Monday.

Friday outflows

News on the cash flows of the dedicated high-yield bond funds has lately been negative, as was the case of the daily cash flows on Friday.

High-yield ETFs sustained $364 million of outflows on Friday. That follows a $408 million outflow on Thursday, according to market sources.

Actively managed funds sustained $180 million of outflows on Friday. They were essentially flat on Thursday, with $5 million of inflows on that day.

The dedicated high-yield bond funds sustained $2.19 billion of net outflows on the week to last Wednesday's close, according to Lipper US Fund Flows in a weekly report that routinely appears on Thursday afternoons.

Hence the Thursday and Friday fund flow numbers above represent a weak start on the fund flows front for the first two sessions of the new reporting period.

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