Morning Commentary: WeWork bonds fall as investors balk; funds see Wednesday outflows

By Paul A. Harris

Portland, Ore., Dec. 20 – Pre-holiday illiquidity has taken hold of the high-yield market, sources say.

Trading is mostly confined to odd lots, such as the small allotments of bonds which the high-yield ETFs tend to require, an investor said on Thursday morning.

Hence the small trades that are taking place, most of which are taking prices lower in the present context, appear outsized due to the overall lack of liquidity, and are tending to magnify the market’s weakness, the source added.

High-yield ETFs were lower Thursday morning. The iShares iBoxx $ High Yield Corporate Bd (HYG) was down 0.52%, or 42 cents, at $80.92 at mid-morning.

Bonds of WeWork Cos. Inc. fell on news that investors in Japan's SoftBank, which planned to take a majority stake in WeWork by means of a $16 billion infusion of cash, lost their appetite for the deal, the investor said.

SoftBank investors, including the Saudi Arabia and United Arab Emirates sovereign wealth funds, are concerned about the valuation of WeWork, a New York-based provider of custom workspaces, and its vulnerability to an economic downturn.

The WeWork 7 7/8% senior notes due 2025 were 87½ bid, 89½ offered on Thursday morning, the investor said, adding that they traded Wednesday at 89.95, and traded at 92¾ on Dec. 13.

Elsewhere the distressed bonds of telecom Frontier Communications Corp. were off sharply, perhaps the result of a portfolio liquidation, the investor said.

The Frontier Communications 11% senior notes due September 2025 were 60 bid, 61 offered on Thursday morning, in conspicuous volume, according to the source, who added that the big liquid distressed issue traded Wednesday at 64¼.

Meanwhile the severe hemorrhaging in the oil patch shows no immediate signs of letting up, the investor noted.

The barrel price of West Texas Intermediate crude for February 2019 delivery fell a further 3.59%, or $1.73, to $46.44 on Thursday morning.

The California Resources Corp. 8% senior secured second-lien notes due December 2022, a big liquid issue employed by high-yield bond investors for the purpose of tracking crude oil prices in the index, reflected that price fall, trading at 66¼ on Thursday, the investor said.

The California Resources notes traded at 70 around noon ET on Wednesday, the source added.

Wednesday outflow

The daily cash flows of the dedicated high-yield bond funds were negative on Wednesday, the investor said.

High-yield ETFs sustained $320 million of outflows on the day.

Asset managers saw $10 million of outflows on Wednesday.

The Wednesday daily flow numbers arrive ahead of an expected report on the weekly cash flows of the combined funds, which customarily appears late on Thursday afternoons.

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