Morning Commentary: Junk slips on low volume ahead of Fed; Carvana 10¼% notes higher

By Paul A. Harris

Portland, Ore., May 4 – After opening 1/8 point better on Wednesday, high-yield bonds eased later in the morning on low volume ahead of the expected announcement of a 50 basis point increase in the benchmark Federal Funds rate from the Federal Reserve Bank's Federal Open Market Committee, according to a bond trader in the New York area.

Heading into the late morning, the iShares iBoxx $ High Yield Corporate Bd (HYG) share price was down 0.31%, or 24 cents, at $78.40.

The Carvana Co. 10¼% senior notes due May 2030 (Caa2/CCC) were up a point on the morning at 98½ bid, 99 offered, the trader said, adding that short covering likely factored into the move.

Hedge funds were preying upon that deal on the break, the source remarked.

Another trader said that the Carvana bonds changed hands Wednesday morning at 98¾, up from 98½ on Tuesday.

The notes priced at par on April 27 in an upsized $3.275 billion deal (from $2.275 billion) that struggled until venture capital firm Apollo Global Management stepped in to take down nearly half ($1.6 billion) of the upsized amount, sources said.

There was no primary market news on Wednesday morning.

The most recent development in the dollar-denominated new issue market came late Tuesday when Bioventus Inc. withdrew its $415 million offering of five-year senior notes (Caa1/CCC+), citing market conditions.

The deal was talked a week ago to yield 9¾% to 10%, slightly wide to initial guidance in the mid-to-high 9% area.

It was to be the Durham, N.C.-based orthobiologics supplier’s debut high-yield bond offering.

When the Bioventus deal failed to price last week, as scheduled, it came under the shadow of the Fed, which made finding the right price very challenging, indeed, the trader said.

A mid-to-late April unsecured deal with the same tenor but a slightly better credit profile demonstrates the recent move in pricing.

The VistaJet 7 7/8% senior notes due May 2027 (Caa1/B-/BB-) traded Tuesday at 94, traders say.

That deal came at 98.986 to yield 8 1/8% on April 20.

Although the dollar-denominated active new issue calendar is empty, there is a lone euro-denominated high-yield buyout deal in the market.

Kepler SpA is marketing a €345 million offering of seven-year senior secured floating-rate notes (B3/B-) in support of the buyout of Biofarma SpA by France-based private equity investor Ardian SAS from White Bridge Investments.

The roadshow is scheduled to run through Thursday.

ETF inflows continue

The high-yield ETFs saw $422 million of daily cash inflows on Tuesday, according to a market source.

It was the second consecutive solid inflow for the ETFs, following $444 million of inflows on Monday.

Actively managed high-yield funds sustained $260 million of outflows on Tuesday, the market source said.

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