Morning Commentary: Junk inches higher as equities rally; pre-holiday liquidity thins

By Paul A. Harris

Portland, Ore., Dec. 21 – With equities staging a rally on Wednesday morning, the high-yield bond market was perhaps 1/8 of a point better, according to a bond trader.

A bullish earnings report from Nike, Inc. appeared to be spurning the late-year enthusiasm in stocks, the trader remarked.

With the S&P 500 stock index up 1.55% at mid-morning, the iShares iBoxx $ High Yield Corporate Bd (HYG) share price was up 0.83%, or 61 cents, at $74.64.

Trading activity continues to thin as market participants turn their attention to Christmas and the holiday week ahead, the trader said.

A few people were cleaning things up ahead of year-end; so, there was a modicum of activity in some distressed names, the trader said.

In that context, the Bed Bath & Beyond Inc. 5.165% senior notes due August 2044 were 1½ points lower on the morning, the source noted.

There was also activity in the Chart Industries, Inc. 7½% senior secured notes due January 2030 (Ba3/B+), which were up about 1/8 of a point, in line with the market, at 101¼ bid, 101½ offered.

The notes priced at 98.661 to yield 7¾% in a $1.46 billion tranche on Dec. 8, in what will almost certainly be 2023's final big, liquid deal.

That Chart Industries deal also included a $510 million tranche of 9½% senior notes due January 2031 (B3/B), which had not traded on Wednesday morning, the source said, adding that the unsecured paper was last seen Tuesday wrapped around 102.

The unsecured notes were priced at 97.949 to yield 9 7/8%.

In a year that saw the high-yield new issue market struggle mightily, with hawkish central bankers driving rates ever higher and threatening worse, in their struggles against inflation, thus making risk assets increasingly difficult to price, the three-times oversubscribed Chart Industries deal – priced efficiently and holding in handsomely in the secondary market – kindles hope that better times in the primary market are on the horizon, sources say.

Meantime the primary market remained quiet and is almost certain to remain that way until the new year, sources say.

Outflows

The dedicated high-yield bond funds sustained $311 million of net daily cash outflows on Tuesday, according to a market source.

High-yield ETFs saw $217 million of outflows on the day.

Actively managed high-yield funds sustained $94 million of outflows on Tuesday, the source said.

The combined funds are tracking $2.4 billion of net outflows for the week that will conclude with Wednesday's close, according to the market source.

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