Morning Commentary: Cetera signals talk, timing; junk funds see $787 million outflows

By Paul A. Harris

Portland, Ore., Oct. 26 – Continuing volatility in risk-free rates quelled activity in the high-yield bond market in the early going on Thursday, according to market sources.

Cash bonds were 1/8 of a point to ¼ of a point lower at mid-morning, a trader said.

With the Dow Jones industrial average down 0.33% at that time, the iShares iBoxx $ High Yield Corporate Bd (HYG) share price was up 0.17%, or 13 cents, at $72.32.

In the primary market, Cetera Financial Group Inc. talked a $700 million offering of Aretec Escrow Issuer 2 Inc. senior secured notes due August 2030 (B2/B) to yield in the 10% area, toward the wide end of initial guidance in the high-9% to 10% area.

Books close at noon ET on Thursday.

At the time official talk circulated, the deal was heard to be playing to $1.15 billion of orders, the trader said.

In a generally quiet secondary market, the Borr IHC Ltd. 10% senior secured notes due 2028 and the 10 3/8% senior secured notes due 2030 (both B3/BB-/B) continued to hold in above issue prices on Thursday.

The 2028 bonds were 98¼ bid, 98¾ offered, while the 2030 paper was 98 bid, 98½ offered, according to a bond trader.

Neither bond was particularly active on Thursday morning, the source specified.

The market’s most recent deal, Borr Drilling’s $1.025 billion 2028 tranche, priced at 97.5 while its $515 million of 2030 paper came at 97 on Tuesday.

Although volatility in risk-free rates has all but shuttered the new issue market, the Borr Drilling issues demonstrate that deals can be done, and trade satisfactorily, the trader asserted.

However opportunistic issuers who can wait probably will do so, the source conceded.

Fund flows

The dedicated high-yield bond funds sustained $787 million of net daily cash outflows on Wednesday, according to a market source.

High-yield ETFs saw $536 million of outflows on the day.

Actively managed high-yield funds sustained $251 million of outflows on Wednesday, the source said.

As the market awaits a report on the weekly cash flows of the various asset classes, expected later on Thursday from fund-tracker Refinitiv Lipper, the combined funds are tracking $900 million of net outflows for the week to Wednesday’s close, according to the market source.

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