Morning Commentary: Junk opens flat ahead of Fed; Carvana inches higher on exchange news

By Paul A. Harris

Portland, Ore., March 22 – The high-yield bond market opened unchanged to perhaps 1/8 point better on Wednesday as investors await word on interest rates from the Fed at the conclusion of the Federal Open Market Committee's March meeting Wednesday afternoon, sources said.

Although most of the big institutions expect the FOMC to raise its benchmark Fed Funds rate another 25 basis points, some believe that uncertainty surrounding the unfolding banking crisis, which has rocked the global financial markets over the past 10 days, will prompt the Fed to temporarily pause its fight against inflation.

With the S&P 500 stock index trading flat at mid-morning, down 0.03%, the Shares iBoxx $ High Yield Corporate Bd (HYG) share price was down 20 cents, or 0.27%, at $73.77.

Near-maturity distressed bonds of Carvana Co. traded sharply higher on Wednesday morning on news that the online auto retailer will attempt to clear away as much as $1.3 billion of its unsecured debt, and in doing so realize $100 million of interest savings with an exchange offer, according to a market source.

The Carvana 5 5/8% senior notes due October 2025 were up 15 points at 65 bid, 70 offered, the source said, adding that it was not clear that longer maturities were enjoying a lift proportional to that of the 2025 paper.

In the wake of the exchange news, the Carvana 10¼% senior notes due May 2030 were 56 bid, 69 offered, according to the market source.

Carvana’s proposed exchange involves five issues of notes – maturities 2025 to 2030, coupons 4 7/8% to 10¼% – which the company seeks to exchange by means of issuing $1 billion of 9% cash/12% PIK senior secured second-lien PIK toggle notes 2028.

Fund flows

The dedicated high-yield bond funds saw $218 million of net daily cash outflows on Tuesday, according to a market source.

Actively managed high-yield funds sustained $155 million of outflows on the day.

High-yield ETFs saw $63 million of outflows on Tuesday.

The combined funds are tracking $625 million of net outflows on the week that will conclude with Wednesday’s close.

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