Morning Commentary: High-yield bond market opens a touch weaker; steel sector outperforms

By Paul A. Harris

Portland, Ore., July 30 – High yield bonds opened the Thursday session modestly weaker, with the HY CDX 24 index down 1/8 of a point, according to a high-yield portfolio manager.

The high-yield steel sector is outperforming on the back of stronger-than-expected earnings news, antidumping petitions signed earlier in the week by AK Steel, Arcelor Mittal USA LLC, Nucor Corp., Steel Dynamics Inc. and United States Steel Corp. with the U.S. Department of Commerce and the U.S. International Trade Commission, and on equity recommendations, the manager said.

AK Steel's 7 5/8% notes due 2020 were 75¼ offered on Thursday, according to the portfolio manager, who added that on Wednesday they traded in a range between 68 and 71 3/8. On Thursday JPMorgan upgraded AK Steel shares to overweight from neutral.

New issues on tap

Thursday figures to see the liveliest session of the week in the new issue market, with syndicate bankers expecting a modest deal calendar to develop during the looming Dog Days of summer.

Alliant Holdings I, LP's $535 million offering of eight-year senior notes (Caa2/CCC+) appears to be coming together at 8¼%, although investors had been clamoring for a higher rate, said the portfolio manager.

The deal, which is being helmed by UBS, was talked in the 8¼% area earlier in the week and is set to price Thursday.

Elsewhere Euramax Holdings Inc. talked its $385 million offering of five-year senior secured notes (Caa2/B-) to yield 12%.

That deal is expected to price Thursday.

And in Europe, Cognita Financing plc talked its £280 million offering of six-year senior secured notes (B2) to yield 7¾% to 8%.

A planned Friday roadshow stop in Paris was canceled, and the offer is set to price on Friday.

Mixed flows

The cash flows of the dedicated high-yield funds were mixed on Wednesday, the portfolio manager said.

High-yield ETFs saw $131 million of inflows on the day.

Asset managers sustained $425 million of outflows on Wednesday.

And dedicated bank loan funds saw $10 million of inflows.

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