Morning Commentary: Junk market opens to good tone; investors chasing health care, energy, telecom

By Paul A. Harris

Portland, Ore., Feb. 26 – The high-yield market opened with a very good tone on Friday, according to a trader on the East Coast of the United States.

Cash bonds were up ½ point to 1 point with investors chasing paper, the trader said.

Conspicuous performers included paper in the health care sector, with bonds of HCA Inc. and Valeant Pharmaceuticals International Inc. well bid for.

Select energy names were up multiple points, the trader said.

Bonds in the telecommunications sector were up a point or so.

“This market feels grabby,” the trader said.

The high-yield ETFs were turning in strong performances heading into the mid-morning, New York time. The iShares iBoxx $ High Yield Corporate Bd (HYG) was up 41 cents, or 0.51%, at $79.11 per share. SPDR Barclays High Yield Bond ETF (JNK), at $33.01 per share, was up 16 cents, or 0.48%.

Lennar talk is 4¾%

In the primary market Lennar Corp. plans to price a $300 million five-year bullet in a Friday drive-by.

Talk is 4¾%, sources say.

By way of comparison, the existing Lennar 4¾% senior notes due Nov. 15, 2022 were marked at 98½ bid on Friday morning, yielding 5.015%, the source said.

Citigroup, Wells Fargo, BofA Merrill Lynch, Deutsche Bank, JPMorgan, Mizuho, Goldman Sachs and RBC are joint bookrunners for the deal, which will fund debt refinancing and general corporate purposes.

Elsewhere Solera LLC and Solera Finance, Inc.’s $2.03 billion equivalent offering of eight-year senior notes (Caa1/B-) could clear on Friday, a trader said.

Unofficially revised yield talk for the dollar-denominated tranche remains 11½% to 12%, up from official talk of 10¾% to 11%, the trader said.

Late Thursday a portfolio manager heard that the book contained $3 billion of orders at 12%.

The deal, via left bookrunner Goldman Sachs, also has a euro-denominated tranche talked to yield in the 25 basis points area inside of the yield of the dollar-denominated notes.

The deal has been facing headwinds, in part because bond investors are demanding greater compensation for a deal they perceive to be highly leveraged, and coming amid volatile market conditions.

Thursday inflows

Dedicated high-yield funds saw cash inflows on Thursday, the trader said.

High-yield ETFs saw $179 million of inflows on the day.

Asset managers saw $175 million of inflows on Thursday.

The Thursday daily flows come on the heels of a Thursday afternoon report from Lipper-AMG that the high-yield funds saw $2.74 billion of inflows for the week to Wednesday’s close, the biggest weekly inflow since last October.

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