Morning Commentary: Market widens on heals of Trump tariff talk; Meritage downsized, revamped

By Paul A. Harris

Portland, Ore., March 2 – Bonds were down 1/8 point to ¼ point and appeared to be heading lower on Friday morning, according to a trader focused on the high-yield/investment-grade crossover segment of the market.

The catalyst for the sell-off, which had also taken hold of U.S. and global equities on Friday morning New York time, was the “Trump tariff tweet,” sources said, referring to U.S. president Donald Trump's Twitter blast asserting “When a country (USA) is losing many billions of dollars on trade with virtually every country it does business with, trade wars are good.”

“That was the catalyst, but really things had been heading wider anyway,” the crossover trader said, adding that the bond market was very sloppy heading into the end of February, with some investors holding at comfortable positions while others, hedge funds in particular, were pushing the market in the wrong direction.

Some recent issues were holding in better than you might expect on Friday morning, the trader said, adding that investors seemed keen to own certain names that were lagging new issue prices.

Meanwhile a high-yield bond trader saw everything a little softer at Friday mid-morning.

Team Health was one of the most active junk issues, down sharply from Thursday levels, the high-yield trader said.

The Tennessee Merger Sub, Inc. (Team Health Holdings, Inc.) 6 3/8% senior notes due February 2025 were 90 bid at mid-morning, up from the 88½ bid open but down sharply from 92½ bid on Thursday.

Thursday issues

Deals that came in a raft of Thursday drive-bys were a mixed bag on Friday morning, the high-yield trader said.

Among those issues, the New Enterprise Stone & Lime Co., Inc. 6¼% senior secured notes due March 15, 2026 (B2/B+) were most active Friday morning at par bid, after trading as well as par 3/8 bid, par 5/8 offered on the break, Thursday afternoon.

Another high-yield trader saw those bonds as good as 101 bid, late Thursday.

The $450 million issue priced at par, at the tight end of the 6¼% to 6½% yield talk, in a deal that went very well, according to traders, who added that the order book was said to contain around $2 billion of orders.

Meanwhile both tranches of new AES Corp. senior notes (Ba2/BB), which came at par in a $1 billion two-part deal on Thursday, were doing fine at par 5/8 bid on Friday.

The deal included $500 million of 4% three-year bullet notes and $500 million of 4½% five-year notes that are non-callable for two years.

The AES deal generated interest among investment-grade accounts as well as junk investors, the high-yield trader said.

Meritage on deck

In an otherwise quiet primary market Meritage Homes Corp. downsized its proposed notes offering to $200 million from $300 million, scrapping plans to print a new 10-year bullet on Friday.

Instead the company is going forward with a $200 million add-on to its non-callable 6% senior notes due June 1, 2025, a deal being talked at 103 to 104.

The revised offer is set to price on Friday.

The Scottsdale, Ariz.-based real estate developer plans to use the proceeds to repay its 4½% notes due 2018 and for general corporate purposes.

Meanwhile in Europe JPMorgan circulated a save-the-date memo for Monday regarding a potential issuer in the financial sector, a London-based debt capital markets banker said.

The March 5 week had been shaping up to be an active one in the European market, the banker said.

However, with the chop in the global markets that followed the Trump tariff talk it’s anybody's guess how the new issue market will operate in the week ahead, the source added.

© 2015 Prospect News.
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