Morning Commentary: Junk slips as risk aversion recaptures markets; IHO talk emerges

By Paul A. Harris

Portland, Ore., March 24 – Junk opened 3/8 of a point lower on Friday as signals from the besieged banking sector continue to be mixed at best, sources said.

The share price and bank capital prices of Deutsche Bank fell sharply during the European session and into the New York open as contagion concerns continue to grip the markets in the wake of action on the part of Swiss bank regulators that wiped out $17 billion equivalent of Credit Suisse tier 1 capital earlier in the month.

Meanwhile conversations between the executive and legislative branches of the U.S. government, bearing upon the authority of the government to intervene on behalf of uninsured depositors of troubled banks, and its will to do so, remain ongoing.

At mid-morning, junk was down ½ point amid low liquidity, according to a bond trader, who said that activity in the high-yield and investment-grade bond markets had been very low on Friday morning.

The DISH Network Corp. 11¾% senior secured notes due November 2027 (Ba3/B+), one of the new year’s benchmark issues, were 91 5/8 bid, 91 7/8% offered, off 5/8 of a point from Thursday’s last round-lot trade, a sellside source said.

Last Thursday those bonds were 94 5/8 bid, 94 7/8 offered, according to a market source.

The $1.5 billion deal, an add-on, priced at 102 on Jan. 17.

The dollar-denominated primary market was dormant on Friday morning, the 16th consecutive session since the last dollar deal was priced, according to a bond trader, who added that the present run of inactivity in the primary market is just one day shy of the one that took place during the Covid shutdown in March 2020.

However, in Europe IHO Verwaltungs GmbH, the holding company for Schaeffler AG, was braving the market with a €500 million offering of five-year sustainability-linked senior secured PIK toggle notes (Ba2/expected BB-/expected BB).

With its brief roadshow scheduled to wrap up, wide-to-whisper yield talk in the 9% area surfaced on Friday.

The deal had been whispered in the mid-to-high 8% area on Thursday, a source said.

Fund flows

High-yield ETFs saw $525 million of daily cash inflows on Thursday, according to a market source.

Actively managed high-yield funds were negative on the day, posting $120 million of outflows on Thursday, the source said.

News of Thursday’s daily cash flows follows a Thursday afternoon report that the combined funds sustained $902 million of net outflows during the week to the Wednesday, March 22 close, according to fund-tracker Refinitiv Lipper.

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