Morning Commentary: Junk opens a touch weaker amid yield hunger; high-yield jailers rebound

By Paul A. Harris

Portland, Ore., Aug. 22 – High-yield bonds opened a touch weaker on Monday amid slow trading, sources said.

Late summer vacations have thinned the ranks of market participants, they add.

Oil prices – a big driver of high-yield market sentiment for the past year – slid as the new week got underway, a trader said.

The barrel price of West Texas Intermediate crude oil for September 2016 delivery was down $1.25, or 2.58%, at $47.27 at mid-morning.

High-yield ETF share prices were lower. The iShares iBoxx $ High Yield Corporate Bd (HYG) was down 8 cents, or 0.10%, at $86.51 per share. The SPDR Barclays High Yield Bond ETF (JNK), at $36.51 per share, was down 0.08%, or 3 cents.

Corrections bonds rebound

Expectations that federal and state law enforcement will have an ongoing need for jail space have sparked a rebound in the bond and stock prices of high-yield issuers from the corrections space, traders say.

Those bonds, from issuers GEO Group, Inc. and Corrections Corp. of America, dropped as much as 20 points last week after an announcement that the U.S. Justice Department that would phase out its use of private prisons.

However by Monday that damage was halved, with issues tending to be down around 10 points from pre-announcement levels.

The GEO Group 5 7/8% senior notes due Oct. 15, 2024 were 90 1/8 bid, 90 3/8 offered on Monday. Prior to the Justice Department announcement last Thursday they were 102½ bid, 102¾ offered.

Corrections Corp. – considered to be better quality paper, with the company enjoying better metrics, a trader said – sustained slightly less damage.

The Corrections Corp. 4 5/8% senior notes due May 1, 2023 were 90 bid, 91 offered on Monday. They fell 10 points on the Justice Department announcement and are now down 6 points to 7 points, the trader said.

Perceptions that the U.S. Department of Homeland Security and the U.S. Marshals will continue to use private jails are part of the reason for the rebound, a trader said.

Meanwhile, yield hunger is tending to sustain strong prices among recent issues, traders say.

The new Tallgrass Energy Partners, LP 5½% senior notes due Sept. 15, 2024 (B1/BB+) were 101¼ bid, 101¾ offered on Monday morning.

The Leawood, Kan.-based midstream energy master limited partnership priced $400 million of the paper at par last Thursday.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.