JOLTS report jolts buyers in junk secondary; Catalent rises; Ford improves; Coinbase gains

By Paul A. Harris and Abigail W. Adams

Portland, Me., Aug. 29 – While Tuesday marked another quiet session in the junk bond secondary space with liquidity continuing to thin ahead of the Labor Day weekend, it was a strong day for the market with the latest JOLTS report jumpstarting buyers.

Equity indexes surged and Treasury yields slumped following fresh labor data that reported 8.83 million job openings, a multiyear low and a figure that came in well below forecasts.

The market has widely anticipated a pause in rate hikes in September.

However, market players were dialing back bets for a November increase following the report, which reflected a much-desired weakening of the labor market, a source said.

The five-year Treasury yield dropped 11 basis points to close Tuesday at 4.277% while the 10-year Treasury yield dropped 8.4 bps to close at 4.12%.

The cash bond market opened Tuesday flat but closed up ¼ to 3/8 point, a source said.

Rate-sensitive names were strong in the session with Ford Motor Credit Co. LLC’s senior notes (Ba2/BB+) on the rise after drifting lower throughout August.

Topical news pushed Catalent Pharma Solutions, Inc.’s 3 1/8% senior notes due 2029 (B1/BB-) into the spotlight with the notes improved following an agreement with activist investor Elliot Investment Management.

While volume was light, Coinbase Global, Inc.’s senior notes (B1/BB-) jumped following news of Grayscale’s successful lawsuit against the Securities and Exchange Commission, which paves the way for SEC bitcoin ETF approval.

The primary market also remained quiet on Tuesday, having apparently run its course for the summer, market sources say.

The active forward calendar is empty.

Ford strong

After a steady downdrift throughout August sparked by potential headwinds in the auto industry, Ford’s senior notes improved on Tuesday.

Ford’s 6.8% senior notes due 2028 gained ¼ to ½ point in active trade.

They were changing hands in the 99½ to par context heading into the market close, according to a market source.

The rate-sensitive notes were largely trading inline with the BB index.

While Tuesday marked a strong day for Ford’s paper, the auto maker’s senior notes have drifted lower throughout August as analysts warn of headwinds for the auto industry.

Ford’s increased interest expense is also expected to hit profits in 2023/2024, a source said.

Catalent rises

Catalent’s 3 1/8% senior notes due 2029 were on the rise following news the company had entered into an agreement with activist investor Elliot.

The 3 1/8% notes gained ¼ point in active trade.

They closed the day in the 83¾ to 84 context, according to a market source.

The yield was about 6¾%.

The notes were in focus after Catalent announced an agreement with Elliot that involved the appointment of new board of director members and the formation of a strategic review committee that may consider the sale of the company.

The announcement coincided with the company’s earnings report, which was mixed.

While the company missed expectations on EBITDA and lowered its revenue guidance, guidance came in above expectations, a source said.

Coinbase jumps

While volume was light, Coinbase’s senior notes made large gains as Grayscale’s victory in its lawsuit against the SEC fanned the flames of the crypto craze.

Coinbase’s 3 3/8% senior notes due 2028 jumped 1½ to 2 points to close the day in the 72½ to 73 context, a source said.

The yield was about 10 3/8%.

Coinbase’s 3 5/8% senior notes due 2031 rose ½ point to close the day at 67 with the yield 9½.

Tuesday marked a strong session for the crypto-exposed company as investors piled in after Grayscale won its lawsuit against the SEC for denying the company’s application to convert its bitcoin Trust into an ETF.

The verdict could pave the way for SEC approval of a flurry of bitcoin ETF applications that are currently undergoing the SEC approval process.

Coinbase has been named as a partner in several pending bitcoin ETF applications.

Fund flows

Cash continued to flow into the high-yield ETFs on Monday, according to a market source.

The ETFs had $135 million of inflows on the day.

Those follow the $535 million of inflows that the ETFs had last Friday.

Actively managed high-yield funds were negative on Monday, sustaining $20 million of outflows on the day, the source said.

The combined funds are tracking $481 million of net inflows on the week that will conclude with Wednesday’s close, according to the market source.

Indexes

The KDP High Yield Daily index gained 20 basis points to close Tuesday at 50.35 with the yield now 7.51%.

The index was up 8 bps on Monday.

The ICE BofAML US High Yield index rose 40.1 bps with the year-to-date return now 6.832%.

The index gained 28.6 bps on Monday.

The CDX High Yield 30 index gained 29 bps to close Tuesday at 102.9.

The index gained 27 bps on Monday.

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