Morning Commentary: Recent junk deals climb in absence of calendar; weekly inflows eyed

By Paul A. Harris

Portland, Ore., Aug. 26 – Junk opened unchanged on Thursday amid thin trading volumes and low market liquidity, traders said.

The market awaits any pronouncements Federal Reserve chairman Jerome Powell might make on inflation, with its implications for interest rates, when he speaks at the Fed's two-day annual convention at Jackson Hole, Wyo., on Friday, a trader said.

With the stock indexes trading in the red at mid-morning, the iShares iBoxx $ High Yield Corporate Bd (HYG) share price was down 15 cents, or 0.17%, at $87.62.

In the absence of a new deal calendar, investors have stepped into existing issues, with the result being that some bonds which had been lagging their issue prices now trade at a premiums, sources say.

The market's most recent deal, the Stagwell Inc. add-on to its 5 5/8% senior notes due August 2029 (B3/B), were sharply higher at 102 bid, 102½ offered on Thursday morning, according to a bond trader.

The $50 million tap priced at par on Wednesday, the first deal of the week.

It was heard to be a “clubby” trade, the source said, with all or most of the add-on paper going to existing holders.

Sylvamo Corp.’s 7% senior notes due September 2029 (B1/BB) were 102 bid, 103 offered, up from par ¼ bid early in the week.

The downsized $450 million issue (from $500 million) priced at par last Friday, well over 100 basis points beyond initial guidance and replete with covenant changes.

Howmet Aerospace Inc.’s 3% senior notes due September 2021 (Ba2/BB+/BBB-), a bullet, were 101 bid, 101½ offered on Thursday morning.

Early in the week the low-coupon deal was trading around par, where it had been priced in a $700 million issue last Wednesday.

The U.S. primary market was quiet on Thursday and is expected to remain generally (if not completely) quiet through the pre-Labor Day week ahead.

Weekly inflows expected

The dedicated high-yield bond funds are tracking $550 million of net inflows for the week that concluded with Wednesday's close, a market source said.

Those flow numbers are expected to be reported later on Thursday on the Refinitiv Lipper Fund Flow Report Newsline.

The funds saw $341 million of net daily inflows on Wednesday, the source said.

High-yield ETFs saw $289 million of inflows on the day.

Actively managed high-yield funds saw $52 million of inflows on Wednesday, according to the market source.

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