Morning Commentary: Junk flat as liquidity thins ahead of holiday; Carnival tops 105

By Paul A. Harris

Portland, Ore., Nov. 25 – High-yield bonds were flat in Wednesday morning trading, unchanged amid thinning liquidity as market participants jockey to wrap most of the Wednesday session, as well as Friday, into an extended Thanksgiving holiday weekend, a trader said.

Focus has been on new issues, which generally continue to turn in strong secondary market performances, the source said.

The dollar-denominated Carnival Corp. 7 5/8% senior notes due March 2026 (B2/B) were 105¼ bid, 106¼ offered on Wednesday, the trader said, noting that at their present price – in the middle of a global pandemic that has left Carnival's business on the beach – the new debt is trading at an astonishing 6% yield to worst.

The Carnival dollar notes came at par last Friday in an upsized $1.45 billion (from $1.425 billion) tranche. It came alongside an upsized €500 million (from €350 million) tranche bearing the same coupon and maturity.

The two tranches combined were heard to have played to a whopping $11 billion equivalent of orders.

“Investors have obviously taken an interest in the 'vaccine' conversation,” the trader said, adding that provided there is a vaccine, the year ahead could see the cruise industry reopening to considerable pent-up demand.

Meanwhile a trio of well-oversubscribed Tuesday tranches were trading well above new issue prices.

The new Ancestry.com (Arches Buyer, Inc.) unsecured paper was outperforming the new secured notes on Wednesday morning, the trader said.

The 6 1/8% senior unsecured notes due December 2028 (Caa1/CCC+) were 102¾ bid, 103¼ offered. The downsized $500 million tranche (from $550 million) priced at par.

The secured paper, senior first-lien notes due June 2028 (B1/B), were par ¾ bid, 101¼ offered. The upsized $700 million tranche (from $450 million) also priced at par.

Books for both tranches were heard to be loaded with more than $5 billion of orders apiece, with the secured paper pricing tight to talk, while the unsecured bonds came inside of talk.

Also on Tuesday, CNX Resources Corp. priced an upsized $500 million (from $400 million) issue of 6% senior notes due January 2029 (B3/BB-/BB) at par, in a deal heard to be four-times oversubscribed.

Those bonds were par ¾ bid, 101¼ offered on Wednesday morning.

As with the Ancestry unsecured notes, the CNX unsecured paper priced inside of price talk.

Heading into the late morning period, with the Dow off 136 points, the iShares iBoxx $ High Yield Corporate Bd (HYG) ETF was flat at $86.33 per share, up 0.03% or 3 cents.

The primary market was quiet heading into the Thanksgiving holiday but is expected to hit the ground running in the post-Thanksgiving week, as the market anticipates $8 billion to $10 billion of issuance per week during the run-up to Christmas, sources say.

However, the interval in question may be brief, the bond trader pointed out, noting that there could be as many as three active weeks left in the 2020 primary market.

However, activity could begin to tail off meaningfully in the third of those three weeks, which will conclude on Dec. 18, the trader said.

Tuesday inflows

The dedicated high-yield bond funds saw $665 million of net daily inflows on Tuesday, according to a market source.

High-yield ETFs saw $625 million of inflows on the day.

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

With only Wednesday’s daily fund flows numbers remaining to go into the tally, the combined funds are tracking $1.04 billion of net inflows for the week that will conclude with Wednesday’s close, according to the market source.

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