Morning Commentary: Junk bonds unchanged post nonfarm payrolls; cash inflows continue

By Paul A. Harris

Portland, Ore., April 1 – Trading activity remained muted in the high-yield bond market as the new month got underway, according to market sources.

Junk was basically unchanged at mid-morning, with the market digesting an underwhelming U.S. nonfarm payrolls report that came in conjunction with publication of a Purchasing Managers index report indicating that supply chain snags persist and implying that inflation is alive and well, a source said.

With the major stock indexes in the United States down 0.2% or less heading into midday, the iShares iBoxx $ High Yield Corporate Bd (HYG) share price was off 0.15%, or 13 cents, at $81.83.

Sustainability-linked bonds sold Wednesday in support of Apollo Global Management's buyout of Novolex Holdings LLC were essentially unchanged on Friday morning, a sellside source said.

The Clydesdale Acquisition Holdings, Inc. (Novolex) 6 5/8% senior secured notes due April 2029 (B1/B) were wrapped around 101.

The downsized $500 million issue (from $750 million) priced at par and saw $3.5 billion of demand, sources said.

The Clydesdale Acquisition Holdings 8¾% senior notes due April 2030 (Caa2/CCC+) were wrapped around 94, as they had been on Thursday, the source said.

The downsized $1.11 billion issue (from $1.23 billion) priced at 93.87 to yield 9 7/8%.

Altogether, Novolex downsized the bond portion of its financing by $370 million, shifting that amount to its bank loan, which ended up at a size of $3 billion.

Meantime the Churchill Downs Inc./CDI Escrow Issuer Inc. 5¾% senior notes due April 2030 (B1/B) were par ¾ bid, 101¼ offered on Friday morning, unchanged from Thursday.

The upsized $1.2 billion issue (from $900 million), supporting the acquisition of Peninsula Pacific Entertainment LLC, priced at par on Wednesday afternoon, playing to $3 billion of demand.

The primary market remained quiet on Friday morning, and the active forward calendar was empty heading into the weekend.

Inflows continue

The cash flows of the dedicated high-yield bond funds, having so far spent much of 2022 wallowing deep in negative territory, continued a streak of solid inflows that commenced in the early part of the past week, according to market sources.

The funds saw $293 million of daily net inflows on Thursday.

Actively managed high-yield funds saw $154 million of inflows on the day.

High-yield ETFs saw $139 million of inflows on Thursday.

News of Thursday’s daily inflows followed a Thursday afternoon report that the combined funds saw $1.24 billion of net inflows in the week to the Wednesday, March 30 close, according to Refinitive Lipper.

That inflow came on the heels of 11 consecutive weekly outflows, nine of which were greater than $1 billion, a market source recounted.

Recent positive flows notwithstanding, the cash flows of the junk funds remain deeply in the red year to date at negative $25.3 billion, the source added.

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