Morning Commentary: Junk opens August flat to slightly lower following late-July rally

By Paul A. Harris

Portland, Ore., Aug. 1 – After opening unchanged in the first session of August, the high-yield bond market eased 1/8 point to ¼ point by mid-morning on Monday, traders said.

July went into the book having generated junk's strongest return since October 2011, sources say.

On a price basis, the high-yield index returned 5.8% in July, a source said.

With the Dow Jones industrial average down 0.18% Monday at mid-morning, the iShares iBoxx $ High Yield Corporate Bd (HYG) share price was essentially flat, off 0.04%, or 3 cents, at $77.92.

Bonds of Valvoline Inc. traded sharply higher on news that the Kentucky-based lubricants supplier plans to sell its global products unit – lubricants and coolants – to Saudi Aramco for $2.65 billion in cash.

The Valvoline 4¼% senior notes due February 2030 were up 6 points on the morning, changing hands at 96¾, a trader said, adding that they closed Friday at 91.

Valvoline plans to use proceeds from the sale to buy back stock and reduce debt, the trader noted.

Elsewhere in the financial headlines, news that Royal Caribbean Group is in the market with a $900 million convertibles deal, which will be dilutive to the cruise line's stock, sent share prices tumbling 10% on Monday morning.

However, Royal Caribbean's bond prices improved, traders said.

The Royal Caribbean Cruises Ltd. 5½% senior notes due April 2028 changed hands on Monday morning at prices ranging from 75 5/8 to as high as 76, after closing Friday at 75½, a trader said.

Elsewhere, the most recent deal to clear the market, the Avient Corp. 7 1/8% senior notes due August 2030 (Ba3/BB-), was down 1/8 of a point on Monday, trading at 103¼, a sellside source said, noting that those bonds traded at 103 3/8 on Friday.

The $725 million issue priced last Wednesday at par.

While the investment-grade primary market ramped up on Monday morning, the high-yield new issue bourse remained quiet.

Friday inflows

The dedicated high-yield bond funds saw strong net inflows of $1.11 billion on Friday, according to a market source.

Actively managed high-yield funds saw $645 million of inflows on the day.

High-yield ETFs saw $465 million of inflows on Friday, the source said.

Last week the combined funds reported $4.83 billion of net inflows for the week to the Wednesday, July 27 close, the biggest weekly inflows since June 2020, according to the market source.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.