Morning Commentary: Junk heads into holiday on solid footing; funds see positive flows

By Paul A. Harris

Portland, Ore., July 2 – Although equities enjoyed a modest bump, high-yield bonds were basically unchanged early Friday on the back of a report from the U.S. Labor Department that 850,000 jobs were added in June, versus the 720,000 expected, market sources said.

“It wasn't a blowout,” a bond trader remarked, but added that junk felt firm on a quiet, pre-holiday summer Friday.

Bonds priced Thursday by APX Group, Inc./Vivint Smart Home Inc. were in the green on Friday morning.

The APX/Vivint 5¾% senior notes due July 2029 (Caa1/CCC) were par 5/8 bid, 101 1/8 offered.

The $800 million issue priced at par, downsized from $900 million, as the borrower shifted $100 million to a concurrent term loan.

At the opposite extreme of the high-yield credit spectrum, Centene Corp.’s split-rated 2.45% bullet due 2028 (Ba1/BBB-/BB) was trading at 101¼ bid, 101¾ offered on Friday, about 93 basis points over Treasuries on the offer side, the trader reckoned.

The $1.8 billion issue price at par on June 24.

Although much of the burgeoning green bond trade unfolds in the investment-grade bond market, green deals have been popping up with greater frequency in the junk bond market as well.

The recently minted Starwood Property Trust, Inc. 3 5/8% green-eligible senior bullet notes due July 2026 (Ba3/B+/BB+) were par ½ bid, 101 on Friday.

The $400 million issue priced last Tuesday at par.

“There is a ton of green money out there, and people need this paper,” the trader said, adding that most of the green deals tend to be higher-rated and come very tight, so investment-grade bond buyers can occasionally be seen shopping for green junk bonds.

Away from existing issues, the primary market was quiet on Friday ahead of the early 2 p.m. ET close recommended by the Securities Industry and Financial Markets Association as the United States prepares to celebrate its July 4 birthday with an extended holiday weekend.

Thursday inflows

The dedicated high-yield bond funds saw $406 million of net daily inflows on Thursday, according to a market source.

High-yield ETFs saw $401 million of inflows on the day.

Actively managed high-yield funds saw $5 million of inflows on Thursday, the source said.

News of Thursday's daily flows follows a Thursday report that the combined funds saw $893 million of net inflows for the week to the Wednesday, June 30 close, according to the Refinitiv Lipper Fund Flow Report Newsline.

It was the largest weekly inflow to the high-yield funds since the first week of April, the market source said.

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