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Morning Commentary: Carnival’s $2 billion drive-by deal sees big demand; junk rallies
By Paul A. Harris
Portland, Ore., Oct. 18 – With the stock market rally stretching into Tuesday morning, the junk bond market was up ½% or more in the early going, according to a sellside source in New York.
At mid-morning, with the S&P 500 stock index up 1.2%, the iShares iBoxx $ High Yield Corporate Bd (HYG) share price was up 0.65%, or 47 cents, at $72.86.
The Ford Motor Co. 6.1% senior green notes due August 2032 (Ba2/BB+) changed hands on Tuesday morning at 89½, up 5/8 of a point in round lot trading, the sellsider said.
The Ford green notes, a $1.75 billion issue that priced at par in mid-August – with widening in the junk bond market already well underway – provide a decent on-the-run indicator of the market's present sentiment, sources say.
Meanwhile the lights came up in the new issue market.
Carnival Corp. launched a drive-by offering of senior priority notes due 2028 (expected ratings B2/B+), which it quickly upsized to $2 billion from $1.25 billion, sources say.
The revised $2 billion size represents the maximum capacity which the company has for issuance in this specific part of its capital structure, a sellside source said.
The deal is talked to yield 10¾% to 11%, including approximately 2 points of original issue discount, well inside of initial yield guidance of 11¼% to 11½%.
Demand for the new notes built quickly to $3 billion, sources said, adding that the offer came on the back of a whopping $750 million of reverse inquiry.
Fund flows
High-yield ETFs saw healthy cash inflows of $617 million on Monday, according to a market source.
Actively managed high-yield funds were negative on the day, however, sustaining $149 million of outflows on Monday, the source said.
The combined funds are tracking $413 million of net outflows for the week that will conclude with Wednesday's close, accord to the market source.
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