Morning Commentary: Junk opens firm; coal, iron ore tumble; junk fund outflows continue

By Paul A. Harris

Portland, Ore., July 2 – Junk bonds opened firm to up a quarter of a point in Europe on Thursday, according to a high-yield bond portfolio manager.

The market felt a little better at the open on the East Coast of the United States, according to a bond trader, who was unable to detect any sense of conviction on the part of investors heading into the three-day Independence Day holiday weekend in the United States, which gets underway at Thursday’s close.

A big drop in the ton price of iron ore sent bonds in the iron ore and coal sectors into a deeper slide on Thursday.

The drop was putting pressure on the bonds of Australia’s Fortescue Metals Group Ltd., the trader said.

The FMG Resources 9¾% senior secured notes due March 1, 2022 were 101½ bid, 102½ offered on Thursday morning, downs from 103 bid, 104 offered on Wednesday.

Further down the company’s capital structure the FMG Resources 6 7/8% senior unsecured notes due April 1, 2022 were down 2 points on Thursday at 68 bid, 69 offered.

In the coal space, the Peabody Energy Corp. 6% senior notes due November 2018 were 39 bid, 41 offered, down from 45 bid, 47 offered on Wednesday. The Peabody 6% notes were 53 bid last Thursday.

SS&C firm

Among recently priced junk deals, SS&C Technologies Holdings Inc.’s 5 7/8% senior notes due July 15, 2023 (B3/B+) continued to trade well above their new issue price on Thursday, the trader said.

The notes, which priced at par to yield 5 7/8% in an upsized $600 million issue on Monday, were 101¾ bid, 102½ offered on Thursday, up a ¼ to 3/8 from the day before.

Outflows continue

The dedicated high-yield funds, which have seen mainly redemptions since the beginning of the week, continued to see outflows on Wednesday, according to a portfolio manager.

High-yield ETFs sustained $117 million of outflows.

There were $340 million of redemptions from actively managed funds.

Dedicated bank loan funds saw $95 million of outflows on Wednesday, the manager said.

© 2015 Prospect News.
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