Morning Commentary: Junk slips amid inflation concerns; Guitar Center notes on tap

By Paul A. Harris

Portland, Ore., March 10 – Amid news reports that the inflation rate in the European Union rose 5.8% in February, the European Central Bank announced on Thursday that it will take “whatever action is needed to fulfill its mandate” to control inflation, including an acceleration of the wind-down of its asset purchases.

Inflation concerns thus refueled, capital markets in Europe and the United States, which rallied hard on Wednesday, once again began bleeding red ink on Thursday morning.

Upon the ECB announcement the iTraxx Europe Crossover index, comprised of the 75 most liquid speculative-grade entities, widened by 19 basis points, according to a London-based market source.

In the United States, high-yield bonds opened 1/8 point to ¼ point lower, traders said.

With the Dow Jones industrial average down 275 points at mid-morning, the iShares iBoxx $ High Yield Corporate Bd (HYG) share price was down 51 cents, or 0.62%, at $81.70.

The Twitter, Inc. senior notes due March 2030 (Ba2/BB+) were half a point lower on the morning at 98 5/8 bid, a trader said.

The oversubscribed $1 billion bullet deal price at par on Feb. 23.

While the high-grade bond market – which saw AT&T Inc./Discovery Inc. price a whopping $30 billion of bonds on Wednesday – continued to crank on Thursday, the speculative-grade new issue market slouched forward at a slow crawl.

Guitar Center, Inc. plans to price a $200 million add-on to its 8½% senior secured notes due Jan. 15, 2026 (B3/B-) in a Thursday drive-by.

The deal is in the market with initial price talk of 100 to 101, a trader said.

The active forward calendar continued to reflect an off-season lull that took hold when Russia invaded the Ukraine in late February.

It presently features $870 million of business coming from two prospective issuers, Carpenter Technology Corp. and SPX Flow Inc. (Redwood Star Merger Sub. Inc.).

Wednesday inflows

The dedicated high-yield bond funds saw $673 million of net inflows on Wednesday, according to a market source.

High-yield ETFs saw $599 million of inflows on the day.

Actively managed high-yield funds saw $74 million of inflows on Wednesday, the source said.

As the market awaits a Thursday afternoon report on the most recent weekly fund flows of the various asset classes, the combined high-yield funds are tracking $1.1 billion of net outflows for the week to Wednesday’s close, according to the market source.

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