Morning Commentary: Junk bonds firm following tame CPI report; W&T Offshore on deck

By Paul A. Harris

Portland, Ore., Jan. 12 – A Consumer Price Index report for December featuring headline numbers that came in line with expectations, suggesting that inflation continues to slow, left the high-yield bond market unchanged to slightly firmer, and generally well-bid on Thursday morning, sources said.

With the Dow Jones industrial average up 0.3% at mid-morning, the iShares iBoxx $ High Yield Corporate Bd (HYG) share price was up 0.18%, or 14 cents, at $76.35.

Bonds of American Airlines, Inc. were up ½ point to 1 point after the Fort Worth-based air carrier cited strong travel demand and higher fares as it increased its revenue and profit estimates.

The American Airlines 11¾% senior secured notes due July 2025, which priced as the world was struggling mightily to take the measure of the coronavirus pandemic (June 2020), changed hands on Thursday at 110½, up ½ point, according to a New York-based bond trader.

Among recent issues, the Transocean Titan Financing Ltd. (RIG) 8 3/8% senior secured notes due February 2028 (B2/B-) were generically 102 bid, 102½ offered on Thursday after being super-active at 102 on Wednesday, the trader said.

The upsized $525 million issue (from $500 million) priced on Monday at par in a heavily oversubscribed drive-by deal.

The RIG deal was very well-received, the trader remarked, adding that there is an expectation among investors that the offshore driller will soon return to the primary market to raise between $500 million and $1 billion.

The active calendar features one deal for Thursday, also an energy name.

W&T Offshore Inc. plans to price $275 million of three-year second-lien senior secured notes (Caa1/B-), which are talked to yield 11¾% to 12% (initial guidance was in the 12% area).

Color on the small-ish deal has not been easy to come by, sources say.

However, at 12% W&T Offshore's deal is “cheap,” the bond trader asserted, adding that the company is doing well and has indicated its intention of paying down debt, rendering it a candidate for a credit rating upgrade.

Fund flows

The dedicated high-yield bond funds sustained $340 million of net daily cash outflows on Wednesday, according to a market source.

High-yield ETFs saw $244 million of outflows on the day.

Actively managed high-yield funds sustained $96 million of outflows on Wednesday, the source said.

As the market awaits a report on the weekly cash flows of the various asset classes, expected later Thursday from Refinitiv Lipper, the combined funds are tracking $2.1 billion of net inflows for the week that concluded with Wednesday's close, according to the market source.

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