Junk bonds rally post-Fed; Martin Midstream adds to strong break; Mauser gains

By Paul A. Harris and Abigail W. Adams

Portland, Me., Feb. 1 – The dollar-denominated new issue market paused ahead of the Fed, on Wednesday, with no deals priced and none announced.

However, the green lights are on in the new issue market after the strong positive reaction to Federal Reserve chair Jerome H. Powell’s Wednesday afternoon press conference.

Formerly apprehensive issuers may now have the confidence to start flooding the market, sources said.

Meanwhile, a red start to the day ended strongly in the green as the market ripped in response to Powell’s comments that inflation was decelerating.

While Powell struck an, at times, hawkish tone and warned of continued hikes and holding policy at restrictive levels, he also acknowledged that the rate-hike campaign was doing its intended job and a pause may be in order in the second half of the year.

The dovish pivot rally was in full effect.

“At some point everyone decided to buy. People started lifting the offer,” a source said.

The CDX index went from negative territory in the early afternoon to a ½ point gain by the market close.

The cash bond market added 3/8 point.

New and recent issues were lifted in the rally.

Martin Midstream Partners LP and Martin Midstream Finance Corp.’s 11½% senior secured second-lien notes (Caa1/B/B) continued to add after a strong break.

Mauser Packaging Solutions Holding Co.’s 7 7/8% senior first-lien notes due 2026 (B2/B) continued their upward momentum in heavy volume.

Green light

On Wednesday afternoon the Federal Open Market Committee (FOMC) delivered a widely expected ¼ point increase in the benchmark Fed Funds rate, as the central bank continues its campaign to tame inflation.

Thereafter a charge went into the markets, a junk bond trader said.

The stock market, which had been luffing in the red throughout the morning, went tearing into the late afternoon.

The high-yield index, which had been outperforming equities throughout the day, moved up 7/8 of a point, the trader said.

The dramatic upward turns in bonds and stocks actually got underway during Fed chair Jerome Powell's post-FOMC press conference, the trader recounted.

“He didn't say anything different. He didn't do anything different. But things went flying,” the source remarked.

Whether or not the Wednesday afternoon market moves represent an affirmation of central bank policy, the green lights are on in the new issue market, the trader said, adding that issuers that had been rendered pensive by turbulent primary market conditions in late 2022 will almost certainly recognize that the window is now open.

One or two drive-by deals are apt to materialize before the end of the week, the source said.

However, the trader had no potential issuer names to proffer.

As reported, Atlas Air Worldwide Holdings Inc. is heard to be in the wings with an expected $800 million offering of Rand Parent LLC first-lien senior secured notes (BB/BB+) via Barclays.

Atlas Air kicked off an $800 million term loan on Tuesday with price talk of SOFR plus 425 basis points at 95 to 96, with commitments due Feb. 9.

Proceeds from the debt will be used to support the acquisition of Atlas Air by Apollo.

Martin Midstream adds

Martin Midstream’s 11½% senior secured second-lien notes due 2028 continued to add after a strong break with the notes trading 3 points above their discounted issue price.

The notes traded in a range of 99½ to par ¼ on Wednesday with the notes wrapped around par 1/8 heading into the close.

There was $30 million in reported volume.

Martin Midstream priced a $400 million issue of the 11½% notes at 97 to yield 12.317% on Tuesday.

The coupon and issue price came on top of talk.

The small deal size and juicy yield helped drive the notes to outsized gains in the aftermarket.

However, three midstream companies are pricing term loans, which made Martin Midstream’s offering less attractive, a source said.

Mauser gains continue

Mauser’s 7 7/8% senior first-lien notes due August 2026 continued their upward momentum in heavy volume with the notes adding another ½ to ¾ point.

The 7 7/8% notes were changing hands in the 101½ to 101¾ context heading into the market close, a source said.

There was $40 million in reported volume.

The notes have made strong gains since the $2.75 billion issue priced at par on Monday.

Fund flows

High-yield ETFs sustained $270 million of outflows on Tuesday, the most recent market session for which data was available at press time, according to a market source.

Actively managed high-yield funds were flat- to slightly positive on the day, posting $5 million of inflows on Tuesday, the source said.

The combined funds are tracking $991 million of net outflows for the week which concludes with Wednesday's close, according to the market source.

Indexes

The KDP High Yield Daily index gained 14 points to close Wednesday at 53.45 with the yield now 6.84%.

The index gained 8 points on Tuesday after shedding 14 points on Monday.

The ICE BofAML US High Yield index gained 35.3 bps with the year-to-date return now 4.263%.

The index was up 15.5 bps on Tuesday after falling 22.7 bps on Monday.

The CDX High Yield 30 index gained 53 bps to close Wednesday at 103.28.

The index jumped 55 bps on Tuesday after falling 46 bps on Monday.

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