Junk bond market snaps back after big losses and fades later but still holds on to some gains

By Paul Deckelman and Paul A. Harris

New York, Aug. 25 – The legendary vocalist Dinah Washington probably put it best, decades ago, when she famously sang “what a difference a day makes – 24 little hours.”

A day ago, on Monday, the junk bond market, taking its cue from an equity market that was reeling under one of the worst one-day beatings ever seen, was likewise on the skids, with many issues down multiple points and all of the major performance indexes definitely pointing south, with some at their worst levels of the past several years.

Fast forward to Tuesday, when equities rose, at least initially, as China cut interest rates in an attempt to help a stagnant economy and stabilize its financial markets. Junk too was on the rebound. One trader declared that “everything that traded down yesterday traded up today.”

Stocks couldn’t hold their gains and ended up lower on the day, but in Junkbondland, most issues did manage to hang on to at least some of their early advances, even if they finished off their day’s highs, and the numerical indexes were better as well.

Once again, there was nothing doing in the primary market, where no activity is anticipated until after the Labor Day holiday break a little less than two weeks from now.

Traders did not see very much activity on the day in recently priced names such as Hill-Rom Holdings, Inc., although the medical technology company’s notes remained firm.

Away from the new issues, companies such as Intelsat Jackson Holdings SA and Sprint Corp. were among the gainers.

The overall better market tone plus an upturn in crude oil prices helped recently hard-hit energy names like California Resources Corp., SandRidge Energy Inc., Halcon Resources Corp. and Comstock Resources Inc.

Statistical market performance measures were higher across the board after five straight lower sessions – and counting in mixed sessions, it was the first unambiguously higher day in nearly a month.

Primary stays silent

Volatility continued to sideline the new issue market on Tuesday, according to a market source.

No deals priced, nor were any deals announced.

Given market conditions, it is unlikely that an issuer would be willing to brave the choppy waters of the high-yield new issue market, sources say.

The new issue market is not likely to reopen until after the Labor Day holiday weekend in the United States, which gets underway on Friday, Sept. 4.

Market comes back

A trader said Tuesday that “we kind of saw a snap-back from yesterday,” when he said that things were down generically between 1 and 3 points, with some issues off even more than that.

The upturn hit its peak with the morning, coinciding with the time when the equity rally was also at its strongest. The Dow Jones industrial average, which had nosedived by 588 points on Monday, was up over 300 points in the early going before turning lower later on and ending down 204.91 points, or 1.29%, at 15,666.44.

Against that backdrop, he continued, “things came off their highs from before as the afternoon wore on, following equities.”

He said that junk bonds “were still generically up for the day but not where we were in that mid-morning timeframe.”

He estimated that high yield “was maybe up ½ to 1½ points. Obviously, there were outliers on either side of that.”

At another desk, a trader declared that “everything that traded down yesterday [Monday] by 3 points was up at least 2 points today.”

For example, he pointed out, Blue Line Rental Finance’s 7% notes due 2019, which had ended on Monday around 90¼ bid, opened around 8 a.m. ET on Tuesday at 91½, and by 10 a.m. ET, they were 93¼ bid. The Shippensburg, Pa.-based construction equipment rental company’s bonds finished up more than 3 points on the day at 93 5/8 bid, with over $10 million having changed hands.

Intelsat gains altitude

One of the busiest names on the day was Intelsat Jackson Holdings. The Bermuda-based communications satellite company’s 7¼% notes due 2019 gained 2¼ points on the day, to 98¼ bid, on volume of more than $18 million, while its 7¾% notes due 2021 zoomed by nearly 4 points to end at 73 5/8 bid, with almost $12 million traded.

A trader said the latter bonds had “definitely traded higher than Friday’s levels,” when they had gone home at 71½, only to fall to 69½ on Monday and then head back up to around 74 at Tuesday’s close.

He said there seemed to be no fresh news out about the company that might explain that push upward, suggesting “maybe it was a short squeeze that got put on today. That would be my first guess.”

Another big gainer out of that same communications sector was Sprint’s 7 7/8% notes due 2023; the Overland Park, Kans.-based wireless provider’s notes gained 1½ points to end at 94 7/8 bid, with over $12 million traded.

Hill-Rom holds its gains

A trader said that the recently priced Hill-Rom Holdings 5¾% notes due 2023 “are doing very well actually,” quoting the Chicago-based medical technology company’s paper in a 101½-to-101¾ bid context.

But he said that volume was “only a few million – not a big trader today.”

Energy bonds energized

A rise in crude oil prices plus the overall better market helped various oil and natural gas exploration and production operators’ bonds, a trader said.

California Resources’ 6% notes due 2024 gained almost 3 points on the day to end just below 71, bouncing back from intraday weakness that had them as low as a 67 handle at one point. Over $23 million traded.

Halcon’s 8 5/8% notes due 2020 rose by 2¼ points to 87½ bid, with over $14 million of volume.

SandRidge’s 8¾% notes due 2020 ended up 2 5/8 points at 62 5/8 bid, on volume of over $12 million, while Comstock Resources’ 10% notes due 2020 rose 2¾ points to end at 77¾ bid, with over $10 million having changed hands.

West Texas Intermediate crude oil for October delivery ended up $1.07 on the day Tuesday at $39.31 per barrel after having dipped below $38 in intraday trading Monday, its lowest levels in over six years.

Indicators turn around

Statistical measures of junk market performance finally broke out of their five-session rut on Tuesday and ended higher across the board. On Monday, some of those market measures had hit new lows for the year or even for the past several years.

Between the sessions when all of the indicators were lower and the mixed sessions, when some were lower and others higher, Tuesday’s session was the first in which all of those market gauges were unambiguously higher in almost a month, since July 29.

The KDP High Yield Daily index jumped by 33 basis points on Tuesday to end at 67.65 – its first gain after five straight sessions on the downside including Monday, when it had crashed by 50 bps. The index had also been lower in 11 out of the previous 14 sessions and in 13 of the prior 17 trading days. Monday’s close at 67.32 had also been its fourth consecutive new low for the year and a fourth straight new 52-week low as well as its lowest finish since it ended at 67.00 on Sept. 10, 2009.

Its yield, meanwhile, came in by 12 bps to 6.46% – its first tightening after six consecutive widenings, including a 15 bps rise on Monday, seven such widening outs in the previous nine sessions and 10 in the prior 12 sessions.

The Markit Series 24 CDX North American High Yield index improved by 5/32 point on Tuesday to end at 103 5/32 bid, 103 3/16 offered. That was its first rise after six successive setbacks, including Monday’s 9/16 point slide and after nine losses in the previous 10 sessions and 12 losses in the 15 prior trading days.

The Merrill Lynch North American Master II High Yield index also ended a lengthy slump Tuesday, gaining 0.529%, its biggest one-day rise on the year so far.

Ironically, that upturn followed Monday’s 0.815% swoon – its biggest one-day loss for the year so far. That had been the widely followed market measure’s fifth straight loss as well as its sixth loss in the previous seven sessions and over the longer term, its 14th loss in the 16 prior trading days.

Tuesday’s gain cut the index’s year-to-date loss nearly in half, to 0.613% from Monday’s 1.136%, which had been the biggest year-to-date loss seen so far this year, surpassing the deficit of 0.59% seen on Jan. 6. It was not only the first time this year’s cumulative loss had exceeded 1% but also the biggest year-to-date deficit the index has seen since Oct. 11, 2011, when the red ink totaled 1.745%.

All of those levels are well down from the 4.062% reading recorded on May 29, the index’s peak level for the year so far.

© 2015 Prospect News.
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