Morning Commentary: Junk improves as equities rally; HY investors eyeball Credit Suisse

By Paul A. Harris

Portland, Ore., Oct. 3 – Equities charged into October staging a big rally in the early going on Monday, and the high-yield bond market went along for the ride, market sources say.

With the Dow Jones industrial average up 2.1% at mid-morning, the high-yield index was around ¼ point better, according to a bond trader in New York.

At that time, the iShares iBoxx $ High Yield Corporate Bd (HYG) share price was up 1.23%, or 88 cents, at $71.92.

The Ford Motor Co. 6.1% senior green notes due August 2032 (Ba2/BB+) soared 2 points in the early going on Monday, said the trader, noting that those bonds had been lifted at 90¼.

Late last week they were 88½ offered, according to a market source.

The Ford 6.1% green notes came at par on Aug. 16 in a $1.75 billion high-grade-style execution.

The primary market, which has been generally idle for the past week, remained so on Monday morning.

There are two issues still hanging around the market; however, both have gone quiet, sources say.

Latam Airlines' $1.5 billion of secured notes and $750 million term loan B both hit turbulence in the wake of dealers' withdrawal of the Brightspeed $2 billion term loan and $1.87 billion bond deal last week.

Although the Santiago, Chile-based air carrier, which exited Chapter 11 bankruptcy last summer, is ostensibly an emerging markets corporate credit, Yankee accounts participated in the debtor-in-possession loan and initially professed interest in the exit financing bonds and loan.

The bonds were heard to have come into the market on reverse inquiry running to as much as half the size of the deal.

Meantime it has also been radio silence on the Villa Dutch Bidco €425 million offering of seven-year senior secured notes (B2/B) backing Bain Capital's acquisition of a majority stake in Belgium-based House of HR, according to a London-based debt capital markets banker, who noted that the concurrent €1.15 billion of term loans syndicated late last week.

Elsewhere in Europe, the bank capital of Credit Suisse has come under the purview of high-yield bond investors after sustaining precipitous price declines on restructuring concerns that followed a series of weekend calls the bank made to its investors, the London debt capital markets banker said.

Credit Suisse AT1 capital is down 5 points to 7 points on the day, according to a market source, who added that five-year CDS spreads are 2.5 basis points wider.

ETFs see Friday inflows

High-yield ETFS saw $435 million of daily cash inflows on Friday, according to a market source.

Actively managed high-yield funds were negative on the day, however, sustaining $145 million of outflows on Friday, the source said.

The combined funds are tracking $1.73 billion of net inflows for the week that will conclude with Wednesday's close, according to the market source.

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