Junk sector surges post-Powell, erases weekly losses; DISH, Carnival hits new heights

By Paul A. Harris and Abigail W. Adams

Portland, Me., Nov. 30 – November ended with a whimper in the high-yield primary market, with no deals pricing and no new deals announced.

Meanwhile, a flat open gave way to a buying frenzy with the secondary space surging ¾ to 1 point following a closely watched speech by Federal Reserve chair Jerome Powell.

Powell reignited the market’s risk-on sentiment after signaling there would be a slowdown in rate hikes at the Federal Reserve Open Market Committee’s December meeting.

Several recent issues were propelled to new heights amid the buying frenzy, including DISH Network Corp.’s 11¾% senior secured notes due 2027 (Ba3/B+) and Carnival Corp.’s most recent 10 3/8% senior priority notes due 2028 (B2/B+).

Citrix Systems Inc./Tibco Software Inc.’s 6½% senior secured notes due 2029 (B2/B) erased losses from the week to return to a previous high in heavy volume.

However, sources remained wary of the rally with Powell reiterating that the peak rate may be higher than anticipated and policy may remain restrictive for an extended period of time.

Primary

The new issue bourse failed to generate any news, whatsoever, in the post-Thanksgiving week to Wednesday's close, restive market watchers told Prospect News during the midweek session.

The last deal to clear the market came over a week ago, on Nov. 22, when Japan-based Rakuten Group, Inc. priced a $500 million issue of 10¼% senior notes due November 2024.

However Fed chairman Jerome Powell appeared to reinvigorate the appetite for risk assets among investors on Wednesday afternoon, a bond trader said.

In remarks delivered at the Brookings Institution Powell said “It makes sense to moderate the pace of our rate increases as we approach the level of restraint that will be sufficient to bring inflation down.”

The inference that the Fed might dial back the magnitude of its inflation-fighting interest rate increases sent the S&P 500 index rocketing 3% higher into the Wednesday close, the trader said.

The reinvigorated risk appetite also made itself felt in the high-yield bond market.

Cash bonds, which had been loafing along unchanged to perhaps slightly lower, ahead of Powell's remarks, ended the session better, the source said.

The investment banks, bludgeoned by losses incurred in bond sales that have frequently required discounts – running the gamut from significant discounts to steep discounts – will be watching for follow-through on Wednesday afternoon's improved risk sentiment, the trader said.

Should that follow-through perceptibly materialize, the lights might come back up in the primary market during what many market watchers have been fearing could be a dormant – or nearly dormant – end to 2022.

New heights

Several recent issues were propelled to new heights on Wednesday as the market surged following Powell’s comments about a deceleration of rate increases.

DISH’s 11¾% senior secured notes due 2027 jumped more than 1 point late in the session to close the day just shy of 103.

The level marked a new all-time high for the notes which had leveled off around 102 over the past two weeks.

While DISH’s 11¾% notes struggled during bookbuilding and were weak on the break, the $2 billion issue, which priced at 98.171, have been on a strong uptrend since its initial days in the aftermarket.

Carnival’s 10 3/8% senior priority notes due 2028 also hit a new all-time high in Wednesday’s rally.

The 10 3/8% notes climbed 1 point in late trading after opening on a 103-handle.

The notes were wrapped around 104½ heading into the market close, a source said.

After hitting a previous all-time high of 104¼, the 10 3/8% notes traded down to 103 amid the market weakness of the past two sessions.

Citrix erases losses

Citrix’s 6½% senior secured notes due 2029 erased losses over the past two sessions to once again trade near an all-time high.

The 6½% notes jumped 1 point in late trading to reclaim an 87-handle.

The notes were wrapped around 86¼ at the opening but surged alongside the broader market following Powell’s comments, a source said.

The notes were changing hands in the 87½ to 87¾ context heading into the market close, a source said.

The level is near the all-time high for the $4 billion issue, which priced at 83.561 in late September.

It was roughly the notes’ level at last week’s close before they dropped to an 86-handle amid the market weakness of the previous two sessions.

Fund flows

For the second consecutive day the high-yield ETFs sustained daily cash outflows in excess of $400 million on Tuesday, according to a market source.

The junk ETFs saw $496 million of outflows on Tuesday, after sustaining $430 million of outflows on Monday.

Actively managed high-yield funds, meanwhile, posted modest inflows of $20 million on Tuesday, the source said.

With Wednesday's daily fund flow totals pending the combined funds are tracking $380 million of net outflows for the week that will conclude with Wednesday's close, according to the market source.

Indexes

The KDP High Yield Daily index climbed 23 points to close Wednesday at 52.22 with the yield now 7.34%.

The index slipped 9 points on Tuesday and 7 points on Monday.

The CDX High Yield 30 index gained 100 bps to close Wednesday at 101.88.

The index gained 17 bps on Tuesday and fell 87.5 bps on Monday.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.