Morning Commentary: Junk opens firmer on Friday as investors scramble to add risk

By Paul A. Harris

Portland, Ore., Aug. 12 – The high-yield bond market opened 1/8 of a point better on Friday morning, in line with stronger equities, market sources said.

With the S&P 500 stock index up 0.68% at mid-morning, the iShares iBoxx $ High Yield Corporate Bd (HYG) share price was up 0.31%, or 25 cents, at $78.49.

A burst of mid-week data suggesting that inflation has cooled sent investors who had been shunning risk throughout much of the summer scrambling to increase their risk exposure, sources say.

Bonds priced on July 20 in support of the leveraged buyout of Cornerstone Building Brands, Inc. by Clayton, Dubilier & Rice, which cleared the market at a steep discount reflecting the dealers' sense of urgency to syndicate the deal's debt financing, have lately seen significant recent improvement, a sellside source said.

The Camelot Return Merger Sub Inc. (Cornerstone) 8¾% senior secured notes due August 2028 (B2/B) changed hands on Friday at 95¼, up 1/8 of a point or so on the day, the source said.

The $710 million issue priced at 90.296 to yield 11% in a deal that struggled, market sources say.

For the past two weeks the bonds had been trading in a 92-94 range but traded up to 95 on Thursday, the sellsider recounted.

Among more recent issues, the Allegiant Travel Co. 7¼% senior secured first-lien notes (Ba3/BB-/BB+) changed hands on Friday at par 7/8, up ½ point, according to the sellside source.

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

Bonds priced earlier in August by Charter Communications, Inc., the CCO Holdings, LLC/CCO Holdings Capital Corp. 6 3/8% senior notes due September 2029 (B1/BB-), were par 3/8 bid on Friday, down 1/8 of a point, according to the sellsider.

The upsized $1.5 billion issue (from $1 billion) priced at par on Aug. 4.

The new issue market, characteristic of a mid-August Friday, remained idle.

However, activity is soon expected to ramp up significantly, the sellsider said, noting that BofA Securities is telegraphing three to five deals for the week ahead.

Fund flows

The dedicated high-yield bond funds saw $235 million of net daily inflows on Thursday, according to a market source.

High-yield ETFs saw $327 million of inflows on the day.

Actively managed high-yield funds were negative on the day, sustaining $93 million of outflows on Thursday.

News of Thursday's daily flows follows a Thursday afternoon report that the combined funds saw $27 million of net inflows for the week to the Wednesday, Aug. 10 close, according to Refinitiv Lipper.

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