Morning Commentary: Junk stabilizes as rates retreat from highs; funds see outflows

By Paul A. Harris

Portland, Ore., Oct. 4 – After opening 1/8 of a point to ¼ of a point lower on Wednesday, high-yield bonds enjoyed modest improvement at mid-morning as risk-free rates eased a bit, according to a bond trader in New York.

Ten-year Treasuries were yielding 4.768% at that point, off highs above 4.8%, the source said.

At that time junk was flat to slightly negative, although sellers maintained their hold on the tiller, with bids-wanted-in-competition (BWICs) outnumbering offers-wanted-in-competition (OWICs), according to the trader.

Against this backdrop, higher quality speculative-grade corporates and crossover paper enjoyed a bit of a tailwind, the source said.

The Charter Communications Operating, LLC/Charter Communications Operating Capital Corp. 5¼% senior secured notes due April 2053 (Ba1/BBB-/BBB-) were up ¼ point to ½ point on the morning, trading just shy of 73, according to the trader.

The LifePoint Health Inc. 11% senior secured notes due October 2030 (B2/B), the most recent issue to clear the market, were up 1/8 of a point on the morning, changing hands at 98 3/8, the source said.

Traders had that paper at 98¼ bid, 98¾ offered on Tuesday.

The $1.1 billion issue priced at par last Friday.

Among big liquid names, the Worldpay (GTCR W-2 Merger Sub LLC) 7½% senior secured notes due January 2031 traded at 99 on Wednesday morning, up ¼ of a point.

The $2.175 billion issue priced at par on Sept. 20.

The dollar-denominated primary market remained quiet on Wednesday morning, and the active forward calendar stood empty.

BofA Securities is telegraphing $10 billion to $15 billion of October new issue business, the trader said, but added that a sizable portion of those prospective issuers who liked the way new issue executions went in September are apt to be put off by October’s more forbidding rate environment.

In the euro-denominated primary market, Italy-based Guala Closures SpA priced a €350 million issue of three-month Euribor plus 400 basis points senior secured floating-rate notes due June 2029 (B1/B+) at 99 on Wednesday.

The spread came at the tight end of spread talk, while the issue price came on top of price talk.

Fund flows

The dedicated high-yield bond funds sustained $816 million of net daily cash outflows on Tuesday, according to a market source.

Actively managed high-yield funds saw $515 million of outflows on the day, according to the source, who added that those outflows were reasonably concentrated.

High-yield ETFs sustained $301 million of outflows on Tuesday.

The combined funds are tracking $1.4 billion of net outflows on the week that is set to conclude with Wednesday’s close, according to the market source.

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