Market Commentary: Junk slips 3/8 or more as mutant coronavirus story sends chill through market

By Paul A. Harris

Portland, Ore., Dec. 21 – High-yield bonds slipped 3/8 of a point to ½ point on Monday as news took hold that the United Kingdom has locked down because of a new coronavirus variant which could be up to 70% more transmissible than the original strain, a bond trader said.

With the Dow Jones industrial average down around 360 points at midmorning, the iShares iBoxx $ High Yield Corporate Bd (HYG) was down 0.46%, or 39 cents, at $86.29 per share.

Amid very thin pre-holiday liquidity cash bonds were off proportional to the credit's perceived exposure to coronavirus fallout, the trader said.

Away from direct exposure to that fallout the market was off ¼ point to ½ point.

However, airlines, cruise lines and travel-related names sustained drops of greater magnitude, the source added.

The United Air Lines groundbreaking intellectual property deal, the Mileage Plus Holdings, LLC/Mileage Plus Intellectual Property Assets, Ltd. 6½% senior secured notes due June 2027 were 107½ bid, 108 offered, down as much as two points, by the trader's reckoning.

The massive $3.8 billion deal priced at 98.75 back in June, as United crossed the finish line with an offer secured by assets related to its customer loyalty/frequent flyer miles program after the carrier scrapped a $2.25 billion junk bond deal in May that was secured by a portfolio of aircraft, and eventually gates and routes, that high-yield investors found lacking.

Out of the skies and onto the sea, Carnival Corp.'s 11½% senior secured first-priority notes due April 2023 were wrapped around 115, the trader said, down one to two points.

The first big issue out of the gate following passage of the $2.2 trillion Coronavirus Aid, Relief, and Economic Security Act (CARES) on March 27, the $4 billion deal priced at 99, rekindling the appetite for risk after virus concerns had cut new-deal flow to a trickle over the preceding fortnight.

The coronavirus news out of the United Kingdom over the weekend also sent energy prices tumbling over concerns that travel restrictions and ongoing economic weakness will continue to constrict demand for energy.

The barrel price of West Texas Intermediate crude for January 2021 delivery was off 3.87%, or $1.90, at midmorning at $47.20.

The Antero Resources Corp. 8 3/8% senior notes due July 2026 (B3/B) were par ¾ bid, 101¼ offered on Monday, down half a point, the trader said.

The oversubscribed $500 million issue, which saw wide participation amid a growing December appetite for energy paper among high-yield investors, priced at par in a burst of issuance last Thursday that may have concluded business in the high-yield primary market for 2020.

Had the Dow been up 300 points instead of down 300 points it is conceivable that the Monday session might have seen a drive-by deal, or maybe even two, the trader remarked.

As it is, the curtain appears to have come down on the 2020 primary market, the source said.

To reiterate, market liquidity was very thin, according to the trader.

This was borne out by automatic “out-of-office” responses to email messages, and telephone calls shifting immediately to vacation voicemail as the Dec. 21 week got underway.

$98 million Friday inflows

The dedicated high-yield bond funds saw $98 million of net inflows on Friday, according to a market source.

Actively managed high-yield funds saw $195 million of inflows on the day.

However high-yield ETFs sustained $97 million of outflows on Friday, the source said.

© 2015 Prospect News.
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