Junk bond dollar market starts to rev up; Level 3 on fire; Coinbase makes gains

By Paul A. Harris and Abigail W. Adams

Portland, Me., July 11 – The dollar junk bond market, which has been idle at the start of the July, started to reactivate on Tuesday.

Meanwhile, it was a strong day in the secondary space with markets optimistic ahead of Wednesday’s Consumer Price Index report.

The cash bond market added ¼ point with strong inflows lifting the market.

“Money’s coming in; people are buying,” a source said.

While the broader market was firm, topical news was the driver of the largest gains in the market.

Lumen Technologies subsidiary Level 3 Financing, Inc.’s senior notes surged on Tuesday adding to the strong gains of the previous two weeks.

Coinbase Global, Inc.’s senior notes (B1/BB-) also strode upward in heavy volume on Tuesday with the company named as a partner to institutional investors seeking to launch Bitcoin ETFs.

Seadrill

July’s first dollar-denominated high-yield deal swam into view on Tuesday.

Seadrill Finance Ltd. started a two-day roadshow for a $450 million offering of seven-year senior secured second-lien notes (B2/BB/B+), in the market with initial guidance of 8¾%.

By contrast, the euro-denominated primary market has been active in July, and continued to generate news on Tuesday.

TIM SpA (formerly Telecom Italia) kicked off a benchmark placement of five-year senior bullet notes (expected ratings B1/B+/BB-) with initial talk of 8% to 8¼%.

Level 3 lit

Level 3’s senior notes were on fire on Tuesday with the notes adding to the strong gains made since the Biden administration rolled out more than $42 billion in funding for high-speed internet access.

Level’s 3’s 3 7/8% senior secured notes due 2029 (Ba2/BB-) climbed 1½ points to an 83-handle.

They were changing hands in the 83 1/8 to 83 3/8 context into the close, according to a market source.

The yield fell to about 7¼%.

With $40 million in reported volume, the notes were the most actively traded during Tuesday’s session.

Level 3’s 3.4% senior secured notes due 2027 (Ba2/BB-) gained another 1 point.

They were changing hands in the 87½ to 88 context heading into the close, a source said.

The yield was about 7 3/8%.

There was $24 million in reported volume.

Level 3’s recently issued 10½% senior secured notes due 2030, which came in an exchange for parent company Lumen’s unsecured notes, added ½ point to close the day at 101 with the yield 10¼%.

There was $15 million in reported volume.

Level 3’s 4 5/8% senior notes due 2027 (B1/B) were the largest gainers of Tuesday’s session.

The notes jumped almost 4 points to a 72-handle.

The notes traded as high as 73 early in the session but came in to close the day in the 72¼ to 72½ context, a source said.

The yield was about 13 3/8%.

There was $24 million in reported volume.

Level 3 has seen a surge in buying interest since late June when the Biden administration announced $42 billion in funding for internet infrastructure, sources said.

Coinbase rises

Coinbase’s senior notes made strong gains on Tuesday with the company named as a partner in the Bitcoin ETF applications of institutional investors.

Coinbase’s 3 3/8% senior notes due 2028 was the most active tranche with the notes jumping 2 points to reclaim a 67-handle.

They were trading in the 67¼ to 67¾ context heading into the market close, according to a market source.

There was $12 million in reported volume.

Coinbase’s 3 5/8% senior notes due 2031 gained 1 point to close the day at 60½ with the yield 11%.

Coinbase’s capital structure soared on Tuesday after the Cboe filed an amendment to its five bitcoin ETF applications that named Coinbase as its partner in a surveillance-sharing agreement.

Coinbase also entered into a surveillance-sharing agreement with BlackRock for its planned Bitcoin ETF.

Coinbase’s senior notes slumped in early June after the Securities and Exchange Commission filed suit against the crypto-exchange for trading tokens which the SEC claims are unregistered securities.

The case is still pending.

However, Coinbase’s senior notes eliminated all losses and are now trading at a higher level than prior to the lawsuit, due to renewed enthusiasm for Bitcoin due to the planned ETFs.

Fund flows

High-yield ETFs had $165 million of daily cash inflows on Monday, the most recent session for which data was available at press time, according to a market source.

Actively managed high-yield funds sustained $47 million of outflows on the day.

The combined funds are tracking $767 million of net outflows for the week that will conclude with Wednesday’s close, according to the market source.

Indexes

The KDP High Yield Daily index added 17 points to close Tuesday at 50.45 with the yield now 7.41%.

The index gained 7 points on Monday.

The ICE BofAML US High Yield index rose 32.8 basis points with the year-to-date return now 5.314%.

The index was up 18.8 bps on Monday.

The CDX High Yield 30 index gained 50 bps to close Tuesday at 102.73.

The index was up 40 bps on Monday.

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