Buyers return to HY secondary; BB credits lifted post-Fed minutes; Frontier hits new heights

By Paul A. Harris and Abigail W. Adams

Portland, Me., May 25 – The domestic high-yield primary market remained dormant on Wednesday with prospects for a new deal prior to Friday’s early close diminishing.

While the primary market remained quiet, there was an uptick of activity in the secondary space on Wednesday with buyers returning in force as the market dials back its projection for a prolonged rate hike schedule.

The cash bond market was up 1 point following the release of the Federal Reserve Open Market Committee’s May minute notes.

While the minute notes solidified the widely expected 50 basis points rate increases at its June and July meetings, the market now expects rate hikes to subside in the second half of the year.

While the cause for a pause in rate increases may be a recession, the risk-on sentiment was strong during Wednesday’s session with ETFs “buying anything they could get their hands on,” a source said.

Offers-wanted-in-competition lists outnumbered bids-wanted-in-competition lists by three-to-one, another source said.

Rate-sensitive names were the largest benefactors of the influx of buyers with several badly battered BB credits outperforming the market.

Carnival Corp.’s 10½% senior notes due 2030 (B2/B) again fought their way back to par in high-volume activity.

Frontier Communications Holdings, LLC’s recently priced 8¾% first-lien secured notes due 2030 (B3/B/BB+) shot up to their highest level since breaking for trade with the notes closing the day on a 104-handle.

Quiet primary

There was no primary market news on Wednesday, and the active forward calendar remained empty.

The likelihood of the dollar-denominated new issue market reactivating ahead of Friday's early, pre-Memorial Day weekend close is becoming increasingly remote, a sellside source said.

As of the Wednesday close it has been one full week since the most recent dollar-denominated deal cleared the market.

Carnival priced a $1 billion issue of 10½% senior notes due June 2030 (B2/B) at par on Wednesday, May 18.

BB credits lifted

Several badly battered rate-sensitive names were among the largest benefactors of buyers returning to the market with BB credits lifted.

Block Inc.’s (formerly Square Inc.) 3½% senior notes due 2031 (Ba2/BB) gained 2 points in heavy volume.

The 3½% notes were changing hands in the 84¾ to 85¼ context heading into the market close, according to a market source.

The yield on the notes was 5.6%.

There was $19 million in reported volume.

The 3½% notes have been hovering near an all-time low of 81¼ for much of the past two weeks.

Jazz Pharmaceuticals plc’s 4 3/8% senior secured notes due 2029 (Ba2/BB-/BB+) were also up about 2 points.

The notes closed Wednesday just shy of 96½ with the yield about 5.38%.

There was $14 million in reported volume.

Valvoline Inc.’s 3 5/8% senior notes due 2031 (Ba3/BB-) jumped 5 points while its 4¼% senior notes due 2030 (Ba3/BB-) rose 4¼ points.

The 3 5/8% notes closed Wednesday at 89 with the yield now 5.16%.

The 4¼% senior notes closed the day at 92 with the yield now 5½%.

Charter subsidiary CCO Holdings LLC’s junk bonds (B1/BB-) were also lifted in heavy volume.

The 4¼% senior notes due 2034 gained almost 2 points to close Wednesday at 83¼ with the yield 6.3%.

The 4¾% senior notes due 2032 shot up 4 3/8 points to close the day at 90¼ with a yield of 6%.

Carnival gains

Carnival’s recently priced 10½% senior notes due 2030 were again clawing their way back to par after closing the previous session on a 98-handle.

The notes were marked at 99¼ bid, par offered early in the session and stood poised to close the day at 99 7/8, a source said.

There was $25 million in reported volume.

The notes have struggled since the $1 billion issue priced at par on May 18 with the notes hitting a 98-handle on the break, clawing their way back to par, only to again sink to a 98-handle.

Frontier’s new heights

Frontier’s recently priced 8¾% senior notes due 2030 hit new heights in high-volume activity on Wednesday.

The notes jumped 2 points to a 104-handle and stood poised to close the day at 104½, according to a market source.

The yield on the notes was now 7.64%.

There was $17 million in reported volume.

The 8¾% notes have performed well since the $1.2 billion issue priced at par on May 9 with the notes largely trading on a 102-handle since breaking for trade.

$589 million Tuesday inflows

High-yield ETFs saw a hefty $589 million of daily cash inflows on Tuesday, the most recent session for which data was available at press time, according to a market source.

The ETFs have now had $1.3 billion of inflows since May 18, and are posting net positive cash flows for May after sustaining $16.1 billion of outflows between January and April, the source said.

Meanwhile, actively managed high-yield funds saw $115 million of outflows on Tuesday, according to the market source.

Indexes

The KDP High Yield Daily index rose 53 points to close Wednesday at 57.38 with the yield now 6.63%.

The index was up 3 points on Tuesday and 57 points on Monday.

The ICE BofAML US High Yield index jumped 85.2 bps with the year-to-date return now negative 9.724%.

The index was up 2.6 bps on Tuesday and 17.5 bps on Monday.

The CDX High Yield 30 index rose 92 bps to close Wednesday at 100.84.

The index was up 16 bps on Tuesday and 69 bps on Monday.

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