Morning Commentary: Junk rally continues; new Allegiant Travel notes trade to premium

By Paul A. Harris

Portland, Ore., Aug. 11 – In a follow-on to the rally sparked by Wednesday’s better-than-expected Consumer Price Index report, the high-yield bond market opened 1/8 point to ¼ point higher on Thursday, according to market sources.

With the U.S. stock indexes higher at mid-morning, the iShares iBoxx $ High Yield Corporate Bd (HYG) share price was up 0.46%, or 36 cents, at $79.06.

On the heels of Wednesday’s comparatively benign CPI report, Thursday’s Producer Price Index numbers furnished further evidence that inflation has slowed, an investor said.

Month-over-month the index actually contracted by half a percent, whereas it had been forecast to increase by 0.2%. At July's close the year-over-year increase in the PPI was 9.8% versus the 10.4% that economists were expecting.

A belief appears to be taking hold among investors that the Fed will moderate the aggressive regime of inflation-fighting interest rate increases it has telegraphed and begin to turn its attention, instead, to the contracting economy, the source said.

Bonds priced by Allegiant Travel Co. in a Wednesday drive-by were trading smartly higher on Thursday morning.

The Allegiant 7¼% senior secured first-lien notes (Ba3/BB-/BB+) were 101 bid, 101½ offered.

The upsized $550 million issue (from $500 million) priced at 99.486, playing to an order book that was heard to be 4½-times oversubscribed.

Away from the recently regenerated new issue market the bonds of Six Flags Entertainment Corp. were lower on Thursday after the company reported that revenues had been dragged down by low attendance.

The Six Flags 5½% senior notes due April 2027 were down 1½ points at 96½ bid, according to a sellside source, who added that those bonds were 98 bid on Wednesday.

The primary market sat idle on Thursday, and the active forward calendar remained empty as the pace of new issue activity is expected to remain slow in the run-up to Labor Day on Sept. 5, the traditional summer-fall terminus in the bond market, sources say.

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