Morning Commentary: Junk catches a bid on Friday; Sylvamo improves; inflows continue

By Paul A. Harris

Portland, Ore., Aug. 27 – With stocks in the United States rallying, investors were lifting the junk bond market on Friday morning, a trader said.

The iShares iBoxx $ High Yield Corporate Bd (HYG) share price was up 20 cents, or 0.23%, at $87.92 at mid-morning.

Investors have taken to buoying bonds sold late last week by Sylvamo Corp., a deal which crawled out the door, replete with covenant concessions, and with price talk widening by 100-plus basis points from initial guidance.

The Sylvamo 7% senior notes due September 2029 (B1/BB) were 103 bid, 103¼ offered, up half a point, on Friday morning.

They were 102 bid, 103 offered on Thursday.

Early in the week that paper was trading at par ¼ bid, having priced late last Friday in a downsized $450 million issue (from $500 million).

With the barrel price of West Texas Intermediate crude oil for October 2021 delivery up $1.19, or 1.77%, at $68.61 at mid-morning, the energy sector was notably outperforming, the trader said.

Hess Midstream Operations LP’s 4¼% senior notes due February 2030 (Ba3/BB+/BB+) were par 7/8 bid, up ¼ point on the day, as investors continue to gravitate toward credit quality, the trader said.

The Houston-based oil and gas midstream company priced those notes at par in a $750 million issue on Aug. 2.

The new issue market was quiet on Friday morning and is expected to remain mostly (if not completely) quiet in the run-up to Labor Day weekend, which begins in one week.

Thus far only one issuer has officially telegraphed a post-Labor Day offering, by means of a press release.

Ahern Rentals, Inc. said on Thursday that it expects to sell bonds during September in order to refinance $550 million of its 7 3/8% second priority senior secured notes due 2023.

Those notes were 97 bid on Friday morning, up from 92 bid a week ago, the trader said, recounting that a year ago they were trading in the 40s.

Thursday inflows

The dedicated high-yield bond funds saw $87 million of net inflows on Thursday, according to a market source.

High-yield ETFs saw $47 million of inflows on the day.

Actively managed high-yield funds saw $40 million of inflows on Thursday, the source said.

News of Thursday’s daily flows trails a Thursday report that the dedicated junk bond funds saw $532 million of net inflows during the week to the Wednesday, Aug. 25 close, according to the Refinitiv Lipper Fund Flow Report Newsline.

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