Junk bonds quiet as Powell reignites rate concerns; Carnival lower; Uniti falls below par

By Paul A. Harris and Abigail W. Adams

Portland, Me., March 7 – The junk bond market, both primary and secondary, was listening as Federal Reserve chair Jerome Powell reignited rate concerns with his congressional testimony.

His warning that rates may need to rise higher than previously anticipated to tame inflation reawakened debates about a 50 basis points rate increase at the end of March and a 6% terminal rate.

While the market was firmly risk-off following Powell’s comments, the secondary space was quiet with the selling that did occur orderly, a source said.

The cash bond market shed ¼ to 3/8 point on Tuesday.

However, volume was light, which sources partly attributed to the lack of a calendar and partly attributed to the JPMorgan global high yield & leveraged finance conference, which runs through Wednesday.

With not much moving on Tuesday, activity in the space was driven by large, liquid, high-beta issues.

Carnival Corp.’s 10 3/8% senior notes due 2028 (B2/B+) were the most actively traded issue in the secondary space with the notes lower alongside the broader market.

Uniti Group LP, Uniti Fiber Holdings Inc., Uniti Group Finance 2019 Inc., CSL Capital, LLC’s 10½% senior secured notes due 2028 (B2/B/BB+) sank back below par in active trade after trading on a par handle for the past two weeks.

DISH Network Corp.’s senior notes were under pressure in heavy volume despite a surge in the company’s stock with rates and refinancing risks driving the notes lower.

Powell effect

Fed chair Jerome Powell sent a chill through the dollar-denominated primary market on Tuesday when he told the Senate banking committee that rate increases of greater magnitude, and a terminal rate higher than the market has been anticipating might come into play as the Fed struggles for traction in its fight against inflation.

Prior to those remarks junk was generically up 1/8 of a point, a trader said.

Post-Powell the market dropped ¾ of a point, the source added.

In London, where Powell's remarks surfaced late in the day, cash bonds were lower and synthetics were wider, a syndicate banker said.

Market watchers had been anticipating at least some new issue activity to emerge from the J.P. Morgan global high yield & leveraged finance conference, in Miami, which has been known in the past for generating a JPMorgan-left-books deal or two.

“I think that they just did not have anything dusted off and ready to go,” said a portfolio manager, attending the conference.

The present week still might see a deal or two, said the investor, adding that in any case the calendar is known to be light.

Pressed for takeaways from the conference, the manager noted that Jamie Dimon, chief executive officer of JPMorgan Chase, spoke at lunch on Monday, expressing concern about the back end of 2023, by which time the effects of the Fed's monetary policy will almost certainly have begun to take hold.

Meantime, in the dollar-denominated primary market, no deals priced on Tuesday.

Carnival lower

Carnival’s 10 3/8% senior notes due 2028 were lower in heavy volume with negative market sentiment dragging the notes down.

The notes fell about 5/8 point to close the day wrapped around 107, a source said.

The notes were trading with a yield of about 8 3/8%.

With $22 million in reported volume, the notes were the most actively traded in the secondary space.

The notes shot up to a 107-handle last Friday and closed the previous session in the 107 5/8 to 107 7/8 context.

Uniti below par

Uniti’s 10½% senior secured notes due 2028 sank back below par in heavy volume on Tuesday after trading with a par-handle for the past two weeks.

The notes were off 1 to 1½ points, a source said.

They were trading in the 99¼ to 99¾ context heading into the market close.

There was $16 million in reported volume.

The once high-performing notes sank from a 101-handle to a 98-handle in mid-February as rate concerns dragged down the broader market.

However, the 10½% notes recouped some losses to pop back above par in late February.

They have largely traded on a par handle for the past two weeks.

Uniti priced a $2.6 billion issue of the 10½% notes at par on Feb. 2.

DISH down

DISH’s senior notes were lower in heavy volume on Tuesday despite a surge in the company’s stock.

DISH’s 11¾% senior secured notes due 2027 (Ba3/B+) were down 5/8 point.

The notes fell back to a par handle and were trading in the par ¼ to par ½ context heading into the market close.

There was $12 million in reported volume.

DISH’s short-duration 7¾% senior notes due 2026 (B3/B) took the biggest hit with the notes falling 1 point.

They closed the day at 76½ with the yield 17 3/8%, a source said.

There was $10.5 million in reported volume.

DISH’s 7 3/8% senior notes due 2028 fell ¼ point to close the day at 67½ with the yield 16 7/8%, a source said.

There was about $10 million in reported volume.

The 5 1/8% senior notes were active but largely unchanged at 58 7/8 with a yield of about 16 7/8%, a source said.

There was $8 million in reported volume.

DISH’s unsecured notes were lower despite a surge in the company’s stock, which shot up 9% in intraday activity before giving back some gains to close the day with a 4% gain.

The company’s stock may have been lifted on news of insider buying.

However, the credit remains under pressure after a ransomware attack the previous week caused widespread outages.

The company also has a heavy debt load and refinancing concerns may have triggered selling in the name, a source said.

Fund flows

The dedicated high-yield bond funds had $412 million of net daily cash inflows on Monday, the most recent session for which data was available at press time, according to a market source.

High-yield ETFs had $372 million of inflows on the day.

Actively managed high-yield funds had $40 million of inflows on Monday, the source said.

The combined funds are tracking $232 million of net outflows on the week that will conclude with Wednesday's close, according to the market source.

Indexes

The KDP High Yield Daily index fell 19 points to close Tuesday at 51.21 with the yield 7.42%.

The index gained 19 points on Monday.

The ICE BofAML US High Yield index fell 31.7 bps with the year-to-date return now 2.93%.

The index rose 33 bps on Monday.

The CDX High Yield 30 index fell 67 bps to close Tuesday at 101.99.

The index gained 7 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.