Morning Commentary: Markets soar after CPI report; House of HR upsizes notes offering

By Paul A. Harris

Portland, Ore., Dec. 13 – A U.S. Consumer Price Index report indicating that November inflation was substantially tamer than expected propelled investors into risk assets on Tuesday morning, according to market sources.

Cash bonds were generically up a point, according to a bond trader in New York.

High beta names, widely followed by the junk ETFs, were up 1½ points to 2 points, the trader said.

The Picard Midco, Inc. (Tibco Software Inc.) 6½% senior secured notes due March 2029 changed hands at 87¼ in active trading, the source said.

The bonds, which came at 83.561 in a $4 billion issue in September – in support of the Citrix-Tibco merger – traded Monday at 86, the trader added.

With no new issue supply and no active forward calendar, investors are squarely focused on existing issues, the trader said.

With the S&P 500 stock index up 1.64% at mid-morning, the iShares iBoxx $ High Yield Corporate Bd (HYG) share price was up a hefty 0.94%, or 71 cents, at $76.04.

The November CPI rose 0.1% versus analysts' expectations of 0.3%, the trader recounted. Year-over-year inflation cooled to 7.1% (analysts' estimate was 7.3%) from September’s 7.7%.

The Federal Reserve Bank's Federal Open Market Committee, which is widely expected to raise its benchmark Fed Funds rate by 0.5% this week, has been telegraphing a more moderate-, but perhaps lengthier approach to fighting inflation, heading into 2023, the trader said.

The markets take that to mean that the 0.75% increases that came during the autumn months of 2022 will give way to more market-friendly hikes of 0.5% or less, the source added.

Tuesday’s CPI should reinforce to central bankers that the course they have lately been telegraphing is indeed the correct one, the trader asserted.

Tuesday's junk bond market rally gave a big lift to one of the most recently minted dollar-denominated issues.

The Chart Industries, Inc. 9½% senior notes due January 2031 (B3/B) were wrapped around 103½ at mid-morning.

They were 101¼ bid, 101¾ offered on Monday.

Those bonds priced at 97.949 to yield 9 7/8% in a $510 million tranche last Thursday.

The Chart Industries 7½% senior secured notes due January 2030 (Ba3/B+) were wrapped around 102 at mid-morning.

Those bonds were par ½ bid, 101 offered on Monday.

The secured notes, which also priced last Thursday, came at 98.661 to yield 7¾% in a $1.46 billion tranche.

The dollar-denominated primary market remained inactive on Tuesday morning.

In Europe, Belgium-based human resources services provider House of HR NV launched an upsized €415 million offering (from €300 million) of 9% seven-year senior secured notes (B2/B) at 92.826 to yield 10½%, at the tight end of yield talk in the 10 5/8% area and well inside of initial guidance of 10¾% to 11%.

Books were scheduled to close on Tuesday.

Proceeds will be used to partially repay the bridge loan drawn in connection with the financing for Bain Capital’s acquisition of a majority stake in House of HR, a Roeselare, Belgium-based human resources company.

A similarly structured €425 million offering was withdrawn from the market in October because of market conditions.

Fund flows

High-yield ETFs saw $353 million of daily cash inflows on Monday, according to a market source.

Actively managed high-yield funds were negative on the day, sustaining $29 million of outflows on Monday, the source said.

The combined funds are tracking $77 million of net inflows on the week that will conclude with Wednesday’s close, according to the market source.

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