Junk sector swings to losses as CPE awaited; Carnival falls back; funds out $3.5 billion

By Paul A. Harris and Abigail W. Adams

Portland, Me., Dec. 22 – As high-yield bond market activity continues to diminish with the approach of Christmas and the holiday week ahead, the new issue market remained quiet on Thursday, and is not expected to reactivate before the end of the year, sources say.

Meanwhile, the wild market swings that categorized the secondary space in 2022 continued into the final days of the year.

The pendulum again swung to losses on Thursday with the market falling ¼ to ½ point to nearly eliminate gains from the previous session.

While the consumer confidence report sparked a buying frenzy on Wednesday, a strong GDP figure and unemployment data that continued to reflect a robust labor market sparked heavy selling on Thursday.

However, liquidity in the secondary space continued to dry up heading into the final days of the year with the lack of liquidity contributing to the large swings, a source said.

While many have already thrown in the towel on 2022, the release of the Consumer Price Expenditure report, the Federal Reserve’s preferred inflation gauge, promises to spark more volatility.

However, with liquidity light, activity in the space remained centered on large, liquid issues.

Carnival Corp.’s junk bond pulled back on Thursday after earnings were announced on Wednesday and the subsequent market rally lifted the cruise line operator’s notes 1 to 3 points.

While the broader market eliminated its gains from the previous session, Citrix Systems Inc./Tibco Software Inc.’s 6½% senior secured notes due 2029 (B2/B) did not.

The 6½% notes held despite the pressure on the market with the notes now on an 85-handle.

Meanwhile, high-yield mutual and exchange-traded funds saw another outsized outflow with $3.5 billion leaving the space in the week through Wednesday’s close, according to the Refinitiv Lipper Fund Flows Report Newsline.

Carnival pulls back

The strong rally in Carnival’s junk bonds on Wednesday was followed by a strong pullback with several tranches giving back much of their gains from the previous session.

Carnival’s 10 3/8% senior priority notes due 2028 (B2/B+) fell ½ point to break below a 104-handle.

The notes were wrapped around 103¾ heading into the market close.

The notes jumped 1¼ points the previous session to trade in the 104 to 104¼ context.

Carnival’s 7 5/8% senior notes due 2026 (B3/B) sank 1 point to close Thursday at 80½ bid, 81 offered.

The notes jumped 2 points to 81 7/8 the previous session.

Carnival’s 10½% senior notes due 2030 fell 1½ points to close Thursday wrapped around 82.

They climbed 3 points to an 83-handle the previous session.

Carnival’s notes made large gains after the cruise line operator reported earnings with the rally on Wednesday further bolstering the notes.

However, the company remains controversial with refinancing risks high, sources said.

Citrix holds

While the broader market was under pressure, Citrix’s 6½% senior secured notes due 2029 held onto their gains.

The 6½% notes continued to trade on an 85-handle, a level they were lifted to during Wednesday’s rally.

The notes were changing hands in the 85¼ to 85½ context during Thursday’s session with the yield about 9 5/8%.

The notes fell to an 84-handle amid the selling pressure early in the week.

Indexes

The KDP High Yield Daily index fell 8 points to close Thursday at 52.36 with the yield 7.27%.

The index gained 15 points on Wednesday after falling 16 points on Tuesday and 17 points on Monday.

The ICE BofAML US High Yield index fell 22.4 basis points with the year-to-date return now negative 10.278%.

The index gained 44.7 bps on Wednesday after falling 26.4 bps on Tuesday and 28.5 bps on Monday.

The CDX High Yield 30 index fell 30 bps to close Thursday at 100.57.

The index jumped 97 bps on Wednesday after falling 24 bps on Tuesday and 29 bps on Monday.

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