Morning Commentary: Junk improves as oil prices rise; Dollar Tree, Netflix bonds maintain premiums

By Paul A. Harris

Portland, Ore., Feb. 13 – The high-yield market was up early Friday, riding on the back of higher oil prices, a trader said.

The CDX North American High Yield Index Series 23 was up an eighth of a point at 106½ bid, 106 5/8 offered.

The barrel price of Brent crude was $61.50 on Friday morning, representing the first time since December that the price has risen above $60, the trader remarked.

The California Resources Corp. 6% senior notes due Nov. 15, 2024 (Ba1/BB), which had been tracking crude oil prices for an extended period beginning in late 2014, were 87 bid, 87½ offered on Friday, said the trader. Early in the year that paper was trading in the low 80s.

Late last year and early in the present year that bond served as a benchmark for the pain that plunging crude oil prices was inflicting on the junk bond market, sources say.

Lately, however, there seems to be less correlation between the California Resource 6% notes and moves in crude prices, the trader remarked.

Activity in the bond has generally diminished in recent weeks.

“Some days it trades like crazy, but other days it’s quiet,” the source said.

Recent issues

Recent new issues, in general, have been turning in strong secondary market performances, the trader said.

The Dollar Tree, Inc. 5¾% senior notes due March 1, 2023 were trading in a 103½ bid context, while the shorter dated Dollar Tree 5 3/8% senior notes due March 1, 2020 were 102¾ bid, 103 offered.

Both are still doing well, said the trader.

The Dollar Tree senior notes (Ba3/BB+) priced at par on Feb. 6 in a $3.25 billion two-part deal.

The Netflix, Inc. senior notes (B1/B+) also continue to trade at a premium to new issue, the trader said, spotting the 5½% notes due Feb. 15, 2022 at par ¾ bid, 101 1/8 offered and the Netflix 5 7/8% notes due Feb. 15, 2025 at 101¾ bid, 102 offered.

Both issues came at par on Feb. 2 in a transaction sized at $1.5 billion.

Non-callable bonds price by Gtech on Feb. 9 continue to be conspicuous underperformers among recent issues, the trader said.

The Gtech 5 5/8% notes due Feb. 15, 2020 were 99 5/8 bid, par 1/8 offered on Friday. The 6¼% notes due Feb. 15, 2022 were 99½ bid, par offered. And the 6½% notes due Feb. 1, 2025 were 99 3/8 bid, 99 7/8 offered.

All those bonds (Ba2/BB+) were priced at par in a deal sized at $3.2 billion and €1.55 billion.

“Given the size, we were expecting a lot of noise around that deal, but for whatever reason that noise never materialized,” the source remarked.

Quiet in the primary

There was no news in the primary market on Friday ahead of the Presidents Day holiday weekend in the United States.

Issuance restrictions placed on companies ahead of pending earnings statements have muted new issue activity, sources say.

That should change by March, in part because dedicated high-yield funds continue to see meaningful inflows of cash.

For the week to last Wednesday high-yield funds took in $2.94 billion, according to a report from Lipper-AMG.

Of that amount, 41% went to high-yield ETFs, a syndicate banker said on Friday morning.

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