Morning Commentary: Junk bond prices resume skid as inflation recaptures spotlight

By Paul A. Harris

Portland, Ore., Sept. 29 – A Wednesday capital markets rally kindled by moves from the Bank of England to support bond prices and the British pound became a tiny speck in the rearview mirror as trading got underway on Thursday morning, according to market sources.

Inflation, having spending much of Wednesday in the shadows, recaptured the spotlight on Thursday morning, they said.

The high-yield bond market opened the Thursday session lower, and fell further from there, sources said, with a bond trader in New York marking the broad market lower by ½ point to as much as a point at mid-morning.

With the S&P 500 stock index down 2.17% at mid-morning, the iShares iBoxx $ High Yield Corporate Bd (HYG) share price was a hefty 1.2%, or 87 cents, at $71.50.

In Europe, the closely followed iTraxx Crossover index, comprised of the 75 most liquid sub-investment grade euro-denominated entities, widened by 11 basis points on Thursday, to 640 bps bid, relinquishing ground that it had recovered during Wednesday’s rally, a London-based debt capital markets banker said.

The high-yield automotive sector lately appears to be succumbing to the corrosive force of inflation, the New York trader said, noting that Cox Automotive cited inflation as it cut its forecasts for new and used vehicle sales.

By Thursday mid-morning the Ford Motor Co. 6.1% senior green notes due August 2032 (Ba2/BB+) were somewhat better, down half a point at 88, the source said.

On Wednesday they were 88½ bid, 88¾ offered.

Ford’s share price (NYSE: F) is down 20% since early September when the company warned that inflation and supply chain issues figured to cost the company as much as $1 billion in the current quarter, the trader recounted.

The Ford 6.1% green notes came at par on Aug. 16 in a $1.75 billion high-grade-style execution.

Inflation finally began registering a negative impact in what had been a robust market for used cars, the trader added.

The deeply distressed bonds of online used car selling platform Carvana Co. sustained price drops, the trader remarked, noting that the Carvana 10¼% senior notes due May 2030 were down as much as 3 points and trading in the high-60s at mid-morning after having earlier gone as low as the mid-60s.

Among recent issues, the Picard Midco, Inc. (Citrix/Tibco) 6½% senior secured notes due March 2029 were down almost a point on the day at 84½, according to the bond trader.

The $4 billion megadeal, backing the buyout of Citrix by Evergreen Coast Capital Corp. and Vista Equity Partners, priced at 83.561 earlier in the month, limping across the finish line with help from some of the venture capital firms involved in the buyout, which took down around $1.5 billion of the bonds, market sources say.

In the most recent deal to clear the market, the Verisure Holding AB 9¼% notes due October 2027 (B1/B) were holding above new issue price at par ½, after opening the Thursday session at 101½ bid, 102 offered, sources said.

The €500 million issue priced at par on Wednesday.

The dollar-denominated new issue market remained idle on Thursday morning, with the market focused on a pair of $1 billion-plus deals from Connect Holding II LLC/Brightspeed and Latam Airlines Group SA.

Although there have been no official updates (marketing on the Brightspeed bond deal had been scheduled to conclude on Wednesday) price conversations on both are heard to be moving wider, sources say.

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