Junk secondary a mixed bag; Charter, Royal Caribbean break down; funds out $5 billion

By Paul A. Harris and Abigail W. Adams

Portland, Me., Sept. 1 – The junk bond secondary space was a mixed bag on Thursday with losses continuing to mount for the cash bond market while the CDX index snapped its losing streak.

The cash bond market fell another ½ to 5/8 point on Thursday as Treasury yields continued their climb following stronger-than-expected economic data.

While the ICE BofAML US High Yield index’s year-to-date returns sank further below negative 11%, the CDX index closed in positive territory after heavy selling early in the session.

However, trading volume remained thin in the runup to the Labor Day weekend.

Several recent issues continued a streak of mounting losses in active trading during Thursday’s session.

Royal Caribbean Group’s 11 5/8% senior notes due 2027 (B3/B) continued a downward trend with the notes falling to a 97-handle during Thursday’s session.

Cruise lines continued to take a hit on recession concerns even as the broader market recovered with Carnival Corp.’s 5¾% senior notes due 2027 (B3/B) down more than 1 point during Thursday’s session.

Charter Communications, Inc. subsidiary CCO Holdings, LLC’s 6 3/8% senior notes due 2029 (B1/BB-) broke below the 97-handle they have largely traded on for the past two weeks.

Meanwhile, high-yield mutual and exchange-traded funds had another week of outsized outflows with $5.043 billion leaving the space in the week through Wednesday’s close, according to the Refinitiv Lipper Fund Flows report.

The outflow was the second largest of the year and followed the previous week’s $4.568 billion outflow.

Back to school

The new issue market remained quiet, as expected, on Thursday, with no further business likely before the conclusion of the extended Labor Day holiday weekend which gets underway following Friday's close.

At some point in the post-Labor Day period the market anticipates the launch of some conspicuous offerings including acquisition financing deals from Citrix Systems Inc. and Tenneco Inc. (Pegasus Merger Co.), deals that had initially been slated as summer business.

And the Tellurian Inc. $1 billion notes/warrants project financing deal, which kicked off earlier this week, will likely cross over into the week ahead.

Notwithstanding a few known, high-profile deals, the autumn new issue pipeline appears altogether modest heading into Labor Day, sources say.

Cruise lines sink

Cruise lines continued to underperform as recession fears are still driving the sector lower.

Royal Caribbean’s 11 5/8% senior notes due 2027, which briefly ranked as one of the best performing new deals of the year, continued their strong downtrend on Thursday.

While buyers buoyed the broader market midsession, Royal Caribbean remained down 1¼ points with the sizeable issue now on a 97-handle.

The notes were changing hands in the 97¼ to 97¾ context in active trading with the yield pushing out to 12 3/8%.

There was $15 million in reported volume.

Royal Caribbean’s 4¼% senior notes due 2026 sank 2 points to close Thursday at 75½ with the yield 12½%.

Carnival’s 5¾% notes due 2027 were also under pressure.

The notes fell 1¼ points in active trading to close the day at 77¼ with the yield now 12½%.

There was $12 million in reported volume.

Charter breaks down

Charter subsidiary CCO Holdings’ 6 3/8% senior notes due 2029 broke down during Thursday’s session with the notes falling 5/8 point to a 96-handle.

The notes were changing hands in the 96 to 96½ context on Thursday, a source said.

They had traded in a tight range on a 97-handle for the past two weeks.

The notes were the most actively traded issue in the secondary space on Thursday with $20 million in reported volume.

While the secondary tone improved dramatically heading into the close, rate-sensitive names continued to take a beating with Treasuries in a tailspin following stronger-than-expected economic data, a source said.

With unemployment claims below expectations and manufacturing data above expectations, the market is bracing for another outsized rate increase in September, a source said.

Outflows

The dedicated high-yield bond funds sustained a hefty $1.36 billion of net daily outflows on Wednesday, according to a market source.

Actively managed high-yield funds saw $1.11 billion of outflows on the day, one of their biggest daily outflows so far this year, the source said.

High-yield ETFs sustained $250 million of outflows on Wednesday.

News of Wednesday's daily flows was followed by a Thursday afternoon report that the combined funds sustained a staggering $5.043 billion of net outflows in the week to Wednesday's close, according to Refinitiv Lipper.

Indexes

The KDP High Yield Daily index fell 30 points to close Thursday at 54.67 with the yield now 7.31%.

The index was down 27 points on Wednesday, 29 points on Tuesday and 32 points on Monday.

The ICE BofAML US High Yield index fell 60.2 basis points with the year-to-date return now negative 11.643%.

The index was down 42.3 bps on Wednesday, 48 bps on Tuesday and 58.9 bps on Monday.

The CDX High Yield 30 index gained 40 bps to close Thursday at 99.15.

The index fell 20 bps on Wednesday, 56 basis points on Tuesday and 55 bps on Monday.

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