Junk bond primary market likely a wrap; United States Steel notes improve

By Cristal Cody and Paul A. Harris

Tupelo, Miss., Dec. 19 – The new issue market for junk bonds remained quiet on Tuesday, and has likely concluded its business for the year, sources say.

In the secondary, United States Steel Corp.’s high-yield bonds extended gains Tuesday with the paper trading more than 2 points better since Monday’s announcement that the manufacturer will be acquired by Japan’s Nippon Steel Corp.

The company’s 6 7/8% notes due 2029 (B1/BB-) were more than 1 point higher over the day as Moody’s Investors Service said it placed the issuer’s ratings under review for an upgrade.

Market tone remained strong with stock indices all on the upswing Tuesday.

The iShares iBoxx High Yield Corporate Bond ETF rose 22 cents, or 0.29%, to $77.20.

Primary

In spite of currently tapering off, December 2023’s $12.46 billion of junk-rated, dollar-denominated issuance makes it the biggest December in three years, a whopping $10 billion higher than December 2022’s $2.42 billion.

December 2023, to date, also comes in 23% above the $9.63 billion of issuance that printed in December of 2021, the biggest year for issuance in the history of the market.

However, the year prior to that, December 2020, put up a daunting $30.1 billion, the new issue market’s biggest December on record.

Notably, the high-yield index has returned 2.58%, month to date, according to an investor who added that it’s the third best December return, ever.

Factoring that, the junk index has generated a formidable 12.37% return, year to date, on track to be the greatest yearly return for the asset class since 2016.

Pristine market conditions that began to take shape as risk-free rates started tumbling, subsequent to topping out at just under 5% on Oct. 18, could have supported a mid-December burst of issuance, sources have said.

However, no issuers elected to enter through that wide open late 2023 window, they lament.

Nevertheless, January promises to be a big month in the primary market, according to a syndicate banker who forecast that the week beginning Jan. 8 should indeed be a big one.

U.S. Steel bonds improve

United States Steel’s 6 7/8% notes due 2029 (B1/BB-) climbed to over a 103 handle Tuesday with the issue more than 1 point better over the session, a source reported.

Trading was mostly in odd lots, though, with more than $2 million of overall volume seen.

The issue added more than 1¼ points Monday to hit 102 on $6.8 million of volume following the announcement that Nippon will acquire United States Steel in a cash and debt deal valued at $14.9 billion.

The transaction is expected to close in the second or third quarter of 2024. Nippon said it plans to fund the acquisition through proceeds mainly from borrowings from certain Japanese banks and has already secured financing commitments.

Fund flows

High-yield ETFs sustained $471 million of daily cash outflows on Monday, the most recent session for which data was available at press time, according to a market source.

Those negative flows follow the $377 million of outflows that the junk ETFs sustained on Friday.

Preceding those two consecutive days of negative flows was a $1.03 billion inflow on Thursday, the source noted.

Meantime, actively managed high-yield funds had $22 million of inflows on Monday.

The combined funds are tracking $1.1 billion of net inflows for the week that will conclude with Wednesday’s close, according to the market source.

Indexes

The KDP High Yield Daily index rose Tuesday to 50.69 with a 6.78% yield versus 50.56 with a yield of 6.84% on Monday.

The index added 109 basis points in the prior week.

The CDX High Yield 30 index climbed 17 bps to 105.56 Tuesday after adding 1 bp on Monday.

The index posted a cumulative gain of 144 bps in the previous week.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.