Morning Commentary: Investors pour into risk; new Navient 11½% bonds jump 2 points

By Paul A. Harris

Portland, Ore., Nov. 2 – A rally in risk assets that ignited Wednesday on news that the Federal Open Market Committee declined to raise its benchmark rate continued to burn fiercely on Thursday morning, sources said.

Cash bonds were up at least ½ point and the high-yield index was up 5/8 of a point, according to a bond trader in New York.

The 10-year Treasury yielded 4.65% at mid-morning, having staged a phenomenal 35 basis points retreat in the past five days, the trader noted.

With the Dow Jones industrial average up 1% at that time, the iShares iBoxx $ High Yield Corporate Bd (HYG) share price was up 1.05%, or 76 cents, at $73.64.

Bonds priced earlier in the week by Navient Corp., the 11½% senior notes due March 2031 (Ba3/B+/BB-), were up close to 2 points on the morning at 103¾ bid, 104 offered, the trader said.

The $500 million issue priced at 99.81 to yield 11½% on Tuesday.

The Raising Cane’s Restaurants LLC 9 3/8% senior notes due May 2029 (B3/B/BB-), the most recent new issue to clear the market, were 101 5/8 bid, 102 offered on Thursday morning.

Those bonds priced at par in a $500 million issue on Wednesday, playing to around $2.3 billion of demand, sources said.

Away from recent issues, the Spirit AeroSystems Inc. 9 3/8% senior secured first-lien notes due November 2029 were 104 3/8 bid, 104½ offered on the morning, the trader said.

They were 102¾ bid, 103¼ offered on Wednesday, according to the source.

Earnings were a mixed bag, the trader noted. Revenues were up 13% in the third quarter, versus the same period in 2022; however, the company reported a $204 million net loss on the quarter, a significant increase from the $128 million net loss reported for the third quarter of 2022.

The trader attributed the price improvement in Spirit’s bonds primarily to the rising tide in risk assets.

“Everything’s up,” said the source, who reported seeing notably high offers on junk bonds being lifted, roundabout.

Offers-wanted-in-competition (OWICs) vastly outnumbered bids-wanted-in-competition (BWICs), the source noted.

“We’re off to the races,” the trader said.

The primary market stood idle on Thursday morning, leaving market-watchers wondering where the new issues might be amid the vigorous appetite for risk that has been on display post-Fed.

Fund flows

High-yield ETFs saw $910 million of daily cash inflows on Wednesday, according to a market source.

Actively managed high-yield funds were flat to slightly negative on the day, sustaining $5 million of outflows on Wednesday, the source said.

As the market awaits a report on the weekly cash flows of the various asset classes, expected later Thursday from fund-tracker Refinitiv Lipper, the combined funds are tracking $900 million of net outflows on the week that concluded with Wednesday’s close, according to the market source.

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