Morning Commentary: Junk opens higher, fades into mid-morning; funds seeing big inflows

By Paul A. Harris

Portland, Ore., July 25 – The high-yield bond market opened 1/8 point to ¼ point better on Monday but appeared to be fading into the mid-morning period, in line with a retreat in equities, according to a trader in New York.

With the S&P 500 stock index essentially flat at mid-morning, up 0.06%, the iShares iBoxx $ High Yield Corporate Bd (HYG) share price was down 0.17%, or 13 cents, at $76.76.

Trading volume was low to start the week, the trader remarked.

Although risk aversion has dragged the market lower and wider, investors have ruled that some of 2022's issues came cheap to extremely cheap.

For example, the Entegris Inc. 5.95% senior notes due June 2030 (Ba2/BB/BB) were 98 bid, 99 offered on Monday.

The $895 million issue, which came steeply discounted (90.832) to yield 7½% on June 16, was trading in a context of 97¼ late last week.

The most recent trade in the Garden SpinCo Corp. (Neogen Corp.) 8 5/8% senior notes due July 2030 (B2/BB) took place at 105, the trader said, specifying that there had been no activity in the paper on Monday morning.

The only dollar-denominated deal sized higher than $50 million to price since the Independence Day holiday weekend, the $350 million Neogen issue priced July 6 at par.

There was activity in the Royal Caribbean Cruises Ltd. 5½% senior notes due April 2028, which changed hands on Monday at 72½, down as much as ¾ of a point on the morning, the trader said.

The Miami-based cruise line sold $1 billion of shares last week, with plans to use the proceeds to repay debt.

The global uptick in coronavirus-related hospitalizations and deaths, as the BA.5 omicron subvariant continues to spread, is unlikely to benefit distressed cruise line paper, the trader remarked.

The NCL Corp. Ltd. (Norwegian Cruise Line Holdings) 7¾% senior notes due February 2029 were unchanged on Monday morning, the trader said.

They changed hands late last week at 80.

The new issue market failed to generate any news on Monday.

There is one deal on the active forward calendar.

Patagonia Holdco LLC is on the road with a $500 million offering of seven-year senior secured first-lien notes (B1/B+) supporting the buyout of Lumen Technologies' Latin American operations by Stonepeak.

Initial guidance specifies a 7½% coupon at OID 86.

Books are scheduled to close on Tuesday.

There is a shadow calendar. However at least some of it is heard to be delayed until the post-Labor Day period.

That appears to be the case with an expected $5.4 billion of debt offerings backing the leveraged buyout of Tenneco Inc. by Apollo Global Management Inc., according to market sources.

Friday inflows

The dedicated high-yield bond funds are seeing their largest inflows since late May, according to a market source.

On Friday the funds saw $1.104 billion of net daily inflows.

High-yield ETFs saw $614 million of inflows on the day.

Actively managed high-yield funds saw $490 million of inflows on Friday, the source said.

The Friday inflows follow the $1.82 billion of net daily inflows which the combined funds saw on Thursday, according to the market source.

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