Morning Commentary: New York weather chills market volumes; Rite Aid drops on disappointing numbers

By Paul A. Harris

Portland, Ore., Jan. 4 – The East Coast “weather bomb” kept some market participants from heading to work on Thursday, thinning volume, according to a bond trader in New York who ventured out.

Although equities were strong, the high-yield bond market was pretty dead at mid-morning, the source said.

With the Dow Jones industrial average up 0.68%, the SPDR Blmbg Barclays High Yield Bd ETF (JNK) was up 0.11%, or 4 cents, at $36.98 per share at mid-morning.

Rite Aid down with numbers

The bonds of Rite Aid Corp. traded lower following an earnings report from the Camp Hill, Pa.-based drugstore chain, the trader said.

The Rite Aid 6 1/8% senior notes due April 2023 were down a point at 90 1/8 bid, 90 3/8 offered in active trading.

Despite reporting an increase in earnings, Rite Aid said that revenue dropped 5.6%, while same-store sales fell 2.5%.

Among recent issues, the Lonestar Resources US Inc. 11¼% notes due January 2023 have traded at a premium to the new issue price set late in the old year, the trader said.

The Lonestar notes were 103 bid on Thursday morning.

The deal came with lots of juice, the trader recounted, adding that initial discussions were in the 8% to 9% range.

The $250 million deal, which priced at par on Dec. 19, also came with investor friendly changes in the structure and covenant package.

The course of crude oil prices in the interim can't have hurt the Lonestar paper, the source noted.

The barrel price of West Texas Intermediate crude oil, which was $57.46 on the day Lonestar priced its deal, had soared to $61.76 by mid-morning Thursday, up 7.5% during that 16-day interval.

Awaiting a calendar

As has been the case all week the new issue market remained dormant in the early, snowy going on Thursday, and is apt to remain so until early in the Jan. 8 week, sources say.

When the 2018 new deal market finally gets underway there should be tailwinds.

In terms of fundamentals, stocks and energy prices continue to rally.

And there continues to be cash to put to work in junk, sources say.

One fund flow tracker saw $645 million of inflows to the dedicated high-yield bond funds in the week to Wednesday's close, as the market awaits the closely watched weekly report from Lipper US Fund Flows due out Thursday afternoon.

Fund flows in 2017 were decidedly negative, the source added, noting that the dedicated high-yield bond funds sustained a whopping $14.9 billion of net outflows over the course of 2017.

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