Morning Commentary: Junk improves on glimmer of stability; however, big outflows expected

By Paul A. Harris

Portland, Ore., Aug. 8 – Interest rates that began to “whipsaw” in the run-up to last week's easing by the Fed appeared to possibly be stabilizing on Thursday morning, according to an investor focused on high-yield bonds and leveraged loans.

The yield of the U.S. 10-year Treasury bond was up by 3 basis points at 1.76%, the investor said, and added that across the industrial world the lately collapsed yields of 10-year government paper were 3 bps to 7 bps higher on Thursday morning.

This paved the way for some improvement in high-yield bonds, the source said.

In Europe, the iTraxx Crossover index, at 277.89 bps bid, 280.31 bps offered, was 5.66 bps tighter on the day, a source there said ahead of the market open in New York.

In the United States, high-yield ETF share prices were up on the morning. The iShares iBoxx $ High Yield Corporate Bd (HYG) was up 0.34%, or 29 cents, at $86.32 per share.

Bonds priced Wednesday by NCR Corp. (formerly National Cash Register) traded at a premium to new issue prices on Thursday morning.

The NCR 5¾% senior notes due September 2027 and the 6 1/8% senior notes due September 2029 were both 101¼ bid, according to the investor.

Both tranches of notes (B2/BB) were priced at par in tranches sized at $500 million apiece, in the middle of price talk, with the greater demand concentrated on the shorter maturity paper, the source said.

Among other recent issues, notes priced at the beginning of August by Freeport-McMoRan Inc. were somewhat improved from earlier in the week but continue to lag new issue prices.

The Freeport-McMoRan 5% senior notes due September 2027 were 98¼ bid on Thursday, up from 98 1/8 bid at the beginning of the week. The 5¼% senior notes due September 2029 were 98 bid on Thursday versus 97 bid at the beginning of the week.

Both tranches of notes (Ba1/BB/BB+) came sized at $600 million and priced at par.

Swissport sets talk

Activity in the new issue market remained muted on Thursday, as it has been throughout the week.

Swissport Group Sarl set price talk in its €780 million two-part offering of high-yield notes.

The deal features €500 million of five-year senior secured notes (B2/B-) talked to yield 5¼% to 5½% and €280 million of 5.5-year senior unsecured notes (Caa2/CCC) talked to yield in the 9% area.

The deal, via bookrunner Barclays, is set to price on Friday.

Turning to the dollar-denominated calendar, two deals were staged to price ahead of the coming weekend.

Clear Channel Outdoor Holdings, Inc. is in the market with $1.26 billion of eight-year senior secured notes (expected Caa2/confirmed B+).

Initial talk is in the mid-5% area.

However, the deal is more likely to price in the 5¼% area, the investor said.

Meanwhile, US Farathane, LLC is scheduled to wrap up a roadshow for its $600 million offering of five-year senior secured notes (B2) on Friday.

Initial guidance on that deal is in the mid-8% area, market sources say.

Wednesday outflows

The daily cash flows of the dedicated high-yield bond funds were decidedly negative on Wednesday, a market source said.

High-yield ETFs sustained $444 million of outflows on the day.

Actively managed high-yield funds saw a whopping $930 million of outflows on Wednesday, the source added.

Market watchers are bracing for a sharply negative metric on the sentiment of the asset class to surface Thursday afternoon when Lipper US Fund Flows is expected to make its report on cash flows for the week to Wednesday's close.

With figures for all five of the current week’s sessions now in the book, the combined funds are tracking a massive $4.2 billion of outflows on the week, according to an informal tally of the daily numbers, the market source said.

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