Morning Commentary: Macy’s leads junk higher with brightened guidance; inflows continue

By Paul A. Harris

Portland, Ore., Nov. 18 – The junk bond market showed incremental improvement on Friday, in line with modestly better stock prices, as a few retailers stepped forward with outlooks that counter the doom and gloom which emanated from that space earlier in the week, sources said.

Cash bonds were up ¼ of a point heading into mid-morning, according to a bond trader in New York, who added that the high-yield CDX was up 3/8 of a point at that time.

With the Dow up 0.24% at mid-morning, the iShares iBoxx $ High Yield Corporate Bd (HYG) share price was 0.15% better, up 11 cents at $74.18.

The bonds of Macy’s improved as the retailer raised its earnings outlook while reporting third-quarter profits that exceeded analysts' expectations, a trader said.

The Macy's Retail Holdings LLC 5 7/8% senior notes due March 2030 rallied 2 points on Friday morning, trading at 87, following a 2-point gain on Thursday, the trader said.

Macy’s outlook counters the dirge heard earlier in the week, as the retail sector then appeared to be staging for a funeral march into the holiday season, with a dire warning from Target.

Elsewhere a couple of high-profile crossover deals that priced during the past week were up in line with the market.

The United Rentals (North America), Inc. 6% first-lien senior secured notes due December 2029 (Baa3/BBB-) changed hands at par ½ on Friday morning, up ¼ of a point, the trader said.

The $1.5 billion issue priced at par to yield 5.999% on Tuesday in a highly oversubscribed deal which – credit ratings notwithstanding – was run on the high-yield syndicate desk.

And the Open Text Corp. 6.9% senior secured notes due in December 2027 (Ba1/BBB-/BBB) were par 5/8 bid, also up ¼ of a point on the morning.

The $1 billion deal, transacted on the investment-grade desk, priced Wednesday at par.

High-yield accounts braved the rarified air of both crossover deals, partially due to the utter lack of a new issue calendar in the junk bond market, traders say.

With respect to that anemic calendar, one deal retains a perch – some say a precarious perch – on the active new issue list.

The market continues to await an update on the Pegasus Merger Co./Tenneco Inc. $1 billion offering of six-year senior secured notes (B2/B-) backing the buyout of Tenneco by Apollo.

That buyout was completed on Thursday, with the investment banks ponying up their committed financing, even though the bonds and the $1.4 billion term loan continue to await syndication.

Bond investors had been anticipating some accommodation in the form of covenant concessions earlier in the week, although none materialized, sources said.

Pending such accommodations, debt backing the Tenneco buyout is facing serious headwinds, they add.

Inflows

The dedicated high-yield bond funds saw $423 million of net daily cash inflows on Thursday, according to a market source.

High-yield ETFs saw $255 million of inflows on the day.

Actively managed high-yield funds saw $168 million of inflows on Thursday.

News of those daily inflows followed a Thursday afternoon report that the combined funds saw $2.93 billion of net inflows for the week to the Wednesday, Nov. 16 close, according to Refinitiv Lipper.

That capped a four-week run of inflows totaling $11.3 billion, according to the market source.

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