Junk secondary tone improves; Netflix pares losses; Norwegian improves; Bombardier gains

By Paul A. Harris and Abigail W. Adams

Portland, Me., Feb. 15 – The domestic high-yield primary market remained dormant on Tuesday despite an improved tone to the market.

Sources were mixed about the pending calendar with some expecting a deal-less week as markets continue to see-saw.

Meanwhile, buyers were returning to the secondary space on Tuesday as investors returned to risk assets amid a decrease in geopolitical tensions.

The cash bond market added ¼ to ½ point during the session.

However, with the 10-year Treasury yield shooting back above the 2% threshold, pressure remained on lower-yielding notes which were lagging in the rally, sources said.

Netflix Inc.’s split-rated senior notes were lifted in active trading although they remained near their recent lows.

Norwegian Cruise Line Holdings Ltd.’s recently priced secured and unsecured tranches were also improved with the higher-yielding unsecured tranche shooting back above par as their secured counterpart remained under water.

Bombardier Inc.’s 6% senior notes due 2028 (Caa1/CCC+) were also on the rise on Tuesday following news of the partial redemption of the company’s shorter-duration notes.

Eyeing the calendar

News headlines reporting that the Russian army pulled back from staging areas for what was perceived to be an imminent invasion of Ukraine sparked a rally in Western capital markets, on Tuesday, and also gave a lift to the junk bond market, sources said.

In spite of that supportive backdrop in equities, which sources have been describing as a prerequisite for a steady supply of new issue activity, the primary market remained dormant.

A portfolio manager who professed no visibility, whatsoever, on any new issue business for the remainder of the Feb. 14 week, said that a lot of the refinancing business that needed to be done has already been taken care of.

And due to ongoing, day-to-day volatility, other potential issuers likely prefer to remain on the sidelines for the time being.

Netflix lifted

Netflix’s split-rated senior notes were active with the notes lifted after hitting a recent low.

The media-streaming behemoth’s 4 7/8% senior notes due 2028 rose ½ point to 106¼, a source said.

The notes were now yielding 3¾%, a source said.

The 5 7/8% senior notes due 2028 were up ½ point to close the day at 112, according to a market source.

The notes were yielding about 3 7/8%.

There was $13 million in reported volume.

While improved on Tuesday, the notes were still trading near their lowest level in more than one year.

The 4 7/8% notes were trading on a 114-handle in early January; the 5 7/8% notes were on a 120-handle.

“There’s been a lot of sellers in the name,” a source said. Netflix was one of the names that has been under pressure amid a higher-rate environment.

Norwegian improves

Norwegian Cruise’s recently priced secured and unsecured tranches improved following Monday’s sell-off.

However, the secured notes remained under water while their higher-yielding unsecured counterpart shot back above par.

The 5 7/8% senior secured notes due 2027 (B1/B+) gained 3/8 point to return to a 98-handle.

They were marked at 98 3/8 bid, 98 7/8 offered early in the session and continued to trade in that context heading into the close.

There was about $23 million in reported volume.

The 7¾% senior notes due 2029 (Caa1/B-) jumped about ½ point after sinking below par the previous session.

The 7¾% notes were marked at par ½ bid, 101 offered on Tuesday.

The notes were marked at 99¾ bid the previous session.

The unsecured tranche continued to outperform their secured counterpart as investors hunt for yield in a higher-rate environment.

Bombardier gains

Bombardier’s 6% senior notes due 2028 were on the rise in active trading after the company announced a partial redemption of its shorter duration notes.

The 6% notes rose 1 5/8 points to close the day at 96 1/8.

There was $14 million in reported volume.

Bombardier announced on Tuesday that it planned to redeem $200 million of its 7½% senior notes due 2024 and a $200 million portion of its 7½% senior notes due 2025. (See related article in this issue)

$351 million ETF inflows

The high-yield ETFs saw $351 million of daily cash inflows on Monday, the most recent session for which data was available at press time, according to a market source.

That inflow stemmed a torrent of negative flows which has seen the junk ETFs disgorge more than $11 billion, or 14% of assets under management, in the past six weeks, the source recounted.

Actively managed high-yield accounts sustained $245 million of outflows on Monday, the source said.

The combined funds are tracking a massive $3.24 billion of outflows for the week that will conclude with Wednesday's close, according to the market source.

Indexes

The KDP High Yield Daily index rose 10 points to close Tuesday at 62.49 with the yield now 5.26%.

The index was down 41 points on Monday.

The CDX High Yield 30 index rose 44 basis points to close Tuesday at 105.81.

The index was up 2 bps on Monday.

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