Morning Commentary: Junk opens stronger; glimmers of hope seen on geopolitical front

By Paul A. Harris

Portland, Ore., March 9 – A trickle of news headlines out of central Europe suggesting that there might be grounds for a negotiated settlement to the war that started when Russia invaded the Ukraine on Feb. 24 sparked a rally in junk bonds, in line with the global capital markets on Wednesday, sources said.

One headline suggested that the Ukraine might be willing to back away from a potential membership in NATO, while another seemed to hint that Russia might be willing to work with Ukraine's current government, a trader recounted.

Dollar-denominated high-yield bonds opened the session ¼ point to ½ point higher, with some names up ½ point to a full point, traders said.

The euro-denominated high-yield bond market was seeing a similar rally.

With the Dow up 2.05% at mid-morning, the iShares iBoxx $ High Yield Corporate Bd (HYG) share price was up 0.61% at $82.03, half a buck better on the morning.

Beaten up bonds of McAfee Corp., the Condor Merger Sub, Inc. 7 3/8% senior notes due February 2032 (Caa2/CCC+), were up 1 1/8 points on the morning at 95¼ bid, a trader said.

That paper changed hands on Tuesday at 94½, the source added.

The $2.02 billion issue priced at par on Feb. 3.

In the energy sector, crude oil prices were off 5¾% from the stratospheric levels to which they traded on Tuesday. However, amid the “insane volatility” in oil prices, the junk bonds in the energy sector maintained a firm tone in the secondary market, traders said.

The lights came up in the new issue market as Carpenter Technology Corp. began a brief roadshow for a $300 million public offering of eight-year senior notes (B2/BB+/BB), in the market with initial guidance in the low-to-mid 7% area, and expected to price on Friday.

Tuesday outflows

The dedicated high-yield bond funds sustained $394 million of net outflows on Tuesday, according to a market source.

High-yield ETFs saw $238 million of outflows on the day.

Actively managed high-yield funds sustained $156 million of outflows on Tuesday, the source said.

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