Morning Commentary: Hedge funds push around Staples and Tesla as low liquidity zaps junk market

By Paul A. Harris

Portland, Ore., Aug. 30 – Two-way trading in the high-yield bond market was at a virtual standstill on Wednesday, a trader said.

With many participants now vacationing into the coming Labor Day holiday weekend, market liquidity is extremely low, the source said.

Sole exceptions are a couple of recently priced deals from Staples Inc. and Tesla, Inc., which came in aggressive executions and have traded poorly since pricing in the middle part of August.

The Staples 8½% senior notes due 2025 (B3/B-) were 96½ bid, 97 offered on Wednesday morning, the trader said.

The downsized $1 billion issue priced at par on Aug. 15. The size was decreased from $1.3 billion after having earlier been decreased from $1.6 billion.

The Tesla 5.3% senior notes due 2025 (B3/B-) were 98 bid, 98½ offered. The upsized $1.8 billion (from $1.5 billion) issue priced at par on Aug. 10. The Tesla allocations were approximately equal to orders placed, leaving very little demand for the new paper in the secondary market, sources commented.

Both Staples and Tesla have now fallen into the hands of the hedge funds, which are pushing them around, the trader said on Wednesday.

Meanwhile the primary market was quiet, as expected.

September could be robust, sources say.

Some, but not all, sellside sources are looking for September issuance to easily top $30 billion.

However heading into the later part of the pre-Labor Day week there are no deals on the active forward calendar.

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