Morning Commentary: Junk opens flat as investors eye rates; KB Home above issue price

By Paul A. Harris

Portland, Ore., June 8 – Junk opened unchanged on Wednesday against a backdrop of softer equity prices and with the yield of the 10-year Treasury hovering at the 3% mark, sources said.

With the Dow Jones industrial average down 0.5% at mid-morning, the iShares iBoxx $ High Yield Corporate Bd (HYG) share price was 0.38% lower, down 30 cents at $77.93.

Two junk bond issues that priced Tuesday were holding around or slightly above their issue prices in early Wednesday trading, sources said.

The KB Home 7¼% senior notes due July 2030 (Ba2/BB) changed hands at par 3/8 on Wednesday morning, a trader said.

The $350 million issue priced at par in a Tuesday drive-by, with pricing on the deal moving up from early discussions in the high-6% area.

The Cogent Communications Group, Inc. 7% senior notes due June 2027 (B3/B) were wrapped around par on Wednesday morning.

The $450 million priced at par, at the tight end of talk.

There was no fresh news in the dollar-denominated primary market.

The active forward calendar features four offerings totaling $2.15 billion presently in the market, all of it expected to price by mid-June.

In the euro-denominated market, Malta-based Media and Games Invest SE set a range of €125 million to €175 million for its proposed offering of new four-year senior secured floating-rate bonds.

Initial talk has the deal coming with a 625 basis points spread to three-month Euribor at an issue price of 98.

Fund flows

Actively managed high-yield bond funds saw $228 million of daily cash inflows on Tuesday, according to a market source.

High-yield ETFs had negative cash flows on the day, sustaining $35 million of outflows on Tuesday, the source said.

With only the Wednesday daily fund flow numbers remaining to go into the tally the combined funds are tracking $1.25 billion of net inflows for the week to Wednesday's close, according to the market source.

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