Morning Commentary: High-yield drops ½ point as equities slide; funds brace for weekly outflows

By Paul A. Harris

Portland, Ore., July 14 – The high-yield bond market fell half a point or perhaps slightly more on Thursday morning, according to a bond trader in New York who noted that all of the major stock indexes in the United States were off by 1% or more at midmorning.

Investor concerns about runaway inflation following Wednesday's bigger-than-expected year-over-year increase in the Consumer Price Index continue to weigh upon the capital markets, compounded by concerns about recession and geopolitical risk, sources said.

With the S&P 500 stock index down 1.57% the iShares iBoxx $ High Yield Corporate Bd (HYG) share price was sharply lower, down 1.2%, or 90 cents, at $73.99.

Bonds of Carvana Co. were down ¾ of a point, the trader said.

The Carvana 10¼% senior notes due May 2030 (Caa2/CCC) were 78¼ bid, 78½ offered after changing hands Wednesday at 79½, the source said.

Carvana priced $3.275 billion of those notes in late April, with Apollo Global Management reported to have taken down nearly half the issue ($1.6 billion).

Trading activity remained light, the trader said.

Meanwhile the market continues to await news on the financing for Apollo's buyout of Tenneco Inc.

Pegasus Merger Co., an affiliate of Apollo, began pre-marketing $2 billion of secured notes and $1 billion of unsecured notes last week.

The deal is still expected before the end of July, the trader recounted on Thursday morning.

However the buzz on the Tenneco deal has died down, the trader said, adding that it seems to have gone “radio silent.”

The active forward calendar features just one offer.

Camelot Return Merger Sub Inc. is on the road with $600 million of six-year non-call-two senior secured notes (B2/B).

Initial guidance has those notes coming with an 8¾% coupon at a discount to yield 10½%.

The roadshow for the bonds and a concurrent $410 million first-lien term loan is set to wrap up on Tuesday.

Fund flows

The dedicated high-yield bond funds sustained $105 million of net daily outflows on Wednesday, according to a market source.

Actively managed high-yield funds had $59 million of outflows on the day.

High-yield ETFs sustained $46 million of outflows on Wednesday, the source said.

Ahead of an expected Thursday afternoon report on the weekly fund flows of the various asset classes from fund-tracker Refinitiv Lipper the combined funds are tracking $1 billion of net outflows for the week to Wednesday's close, according to the market source.

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