High-yield primary, secondary launch second-half quietly; Howard Midstream gains

By Abigail W. Adams

Portland, Me., July 3 – The domestic high-yield bond primary market was dormant as expected on Monday with markets closing early for the July 4 holiday in the United States on Tuesday.

While the week ahead will be truncated, the primary market is expected to reactivate when markets resume activity with issuance expected before the week draws to a close.

Sources expect to see some deals generate from the energy services sector.

Meanwhile, the secondary space opened the first day of the second half of 2023 with a whimper after closing the previous quarter on strong footing.

The cash bond market was either side of unchanged in light volume after Friday’s strong session.

The high-yield market ended the first half of the year on strong footing with spreads near the year-to-date tight, a source said.

Spreads have tightened about 125 basis points since the collapse of Silicon Valley Bank in March sent markets reeling.

While markets have rallied on recession relief in the past week, the increasing probability of rate hikes may dampen the rally in the second half, sources said.

Meanwhile, liquidity was extremely thin during Monday’s abbreviated session with most using the Tuesday timing of the July 4 holiday for an extended weekend. Few names were active in the secondary space.

Howard Midstream Energy Partners, LLC’s recently priced 8 7/8% senior notes due 2028 (B3/B+), the last deal to clear the primary market, gained steam in light trading with the notes breaking above a par handle.

Civitas Resources, Inc.’s two tranches of senior notes (B1/BB-/BB-) held their gains from the previous session with the notes continuing to trade at their highest level since pricing.

Howard Midstream gains

Howard Midstream’s recently priced 8 7/8% senior notes due 2028 (B3/B+) continued to gain steam on Monday, closing the day above a par handle.

The notes added ¼ point in thin volume to close the day wrapped around 101, a source said.

The 8 7/8% notes were the last deal to clear the primary market with the $550 million issue pricing at par on June 28.

Civitas holds gains

Civitas’ two tranches of senior notes held the gains made during Friday’s session and continued to trade at their highest level since pricing.

The 8¾% senior notes due 2031 outpaced their lower yielding shorter-duration counterpart, although both tranches were trading on a 101-handle.

The 8¾% senior notes continued to trade in the 101 3/8 to 101 5/8 context on Monday after a ¼ point gain the previous session, a source said.

The 8 3/8% senior notes due 2028 were trading in the 101 1/8 to 101 3/8 context.

Recent deals have had mixed performances in secondary market activity with Civitas among the names that have performed well.

Civitas priced a $1.35 billion tranche of the 8¾% notes and a $1.35 billion tranche of the 8 3/8% notes at par on June 22 in support of acquisitions that will expand the oil and gas extraction company’s presence in the Permian Basin.

Fund flows

Fund flows were mixed on Friday, the most recent session the information was available, with ETFs seeing inflows of $891 million while actively managed funds saw outflows of $31 million, according to a market source.

The daily report comes after high-yield mutual and exchange-traded funds reported a weekly outflow of $730 million.

Funds are on track for an inflow for the week closing on Wednesday.

Indexes

The KDP High Yield Daily index shaved off 2 points to close Monday at 50.59 with the yield now 7.33%.

The index posted a cumulative gain of 33 points on the week the previous week

The CDX High Yield 30 index was down 19 basis points to close Monday at 102.58.

The index posted a cumulative gain of 125 bps on the week last week.

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