Morning Commentary: Junk bond prices improve amid renewed risk appetite; calendar eyed

By Paul A. Harris

Portland, Ore., March 29 – The high-yield bond market opened ¼ point higher on Tuesday as stock indexes in the United States advanced and Treasury yields dramatically retreated, according to a bond trader in New York.

The CDX HY 38 index, which tracks high-yield and emerging markets credit default swaps, was up 5/8 of a point to ¾ of a point at mid-morning, the trader said, noting that 10-year Treasuries were flashing “risk-on,” with the benchmark yield staging a major retreat to 2.38% from 2.54%.

With the Dow Jones industrial average up 0.6% at mid-morning, the iShares iBoxx $ High Yield Corporate Bd (HYG) share price was up 0.57%, or 47 cents, at $82.30.

News headlines that Russia appears to be de-escalating its invasion of the Ukraine sent investors scurrying back into risk, the trader remarked.

Some junk bonds that have lately been heavily shorted were rallying impressively on Tuesday morning, the trader said.

The Centene Corp. 2.45% senior notes due July 2028 were up 1 point to 1¼ points on the day, the source said.

Among recent issues, Yum! Brands, Inc.’s 5 3/8% senior notes due April 2032 (Ba3/BB) were par bid, par ½ offered, said the trader, adding that the bonds were wrapped around par on Monday.

The upsized $1 billion issue (from $500 million) priced at par last Thursday.

A report that BofA lowered its 2022 issuance estimate by $55 billion, now expecting $340 billion of gross issuance for the full year, is particularly unwelcome because investors are clamoring for a much more robust new deal calendar, the trader said.

However, ongoing market volatility and rocketing interest rates are keeping issuers on the sidelines, sources say.

When the dust clears on the first quarter of 2022, total new issuance for the period is expected to be just above $50 billion, making it the weakest first quarter for issuance since 2016 ($36.16 billion), and the second weakest of any first quarter going back to the beginning of 2010, according to Prospect News data.

With no primary market news on Tuesday, the active forward calendar sports just one offering.

Clydesdale Acquisition Holdings Inc. is marketing $1.98 billion of sustainability-linked notes backing the buyout of Novolex Holdings LLC by Apollo.

The deal includes $750 million of seven-year senior secured notes (expected ratings B2/B). Initial guidance has the secured notes coming to yield in the low 7% area with an expected original issue discount. The offering also includes $1.23 billion of eight-year senior notes (expected ratings Caa2/CCC+). Initial guidance on the unsecured notes has them pricing 250 basis points to 290 bps behind the secured notes, also with an expected original issue discount.

Demand for the secured paper is already heard to be well in excess of the proposed tranche size, a sellside source told Prospect News.

Books are expected to close on Wednesday, the sellsider added.

Monday outflows

The dedicated high-yield bond funds sustained $385 million of net outflows on Monday, according to a market source.

High-yield ETFs saw $290 million of outflows on the day.

Actively managed high-yield funds sustained $95 million of outflows on Monday, the source said.

The combined funds are tracking $368 million of net outflows for the week that will conclude with Wednesday's close, according to the market source.

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