Morning Commentary: NFP bonds pop on AON acquisition news; Market moves into holiday mode

By Paul A. Harris

Portland, Ore., Dec. 20 – High-yield bonds opened unchanged on Wednesday, as the approach of the year-end holidays began to impact market’s liquidity, in earnest, a trader said.

With the U.S. stock indexes mixed and generally flat at midmorning, the iShares iBoxx $ High Yield Corporate Bd (HYG) share price was up 0.39%, or 30 cents, at $77.50.

News that middle-market insurance brokerage NFP Corp. will be acquired by Aon plc for about $13.4 billion in cash and stock pushed NFP’s 6 7/8% senior notes due August 2028 to 101½ bid, 101¾ offered, up from 93½ bid on Tuesday, the trader said.

The deal, which is to be financed by $7 billion in cash – including $5 billion of new debt raised in 2024 – and $6.4 billion in Aon stock, is expected to close in the middle part of 2024, the source added.

The bonds appear to be trading into a make-whole call in autumn 2024, the trader said, adding that the transaction is not expected to impact Aon’s investment-grade ratings, and a change-of-control likely won’t obtain.

Because of late-year M&A activity, driven by falling rates, Christmas came a little later than usual to some bond trading floors in 2023, the source said.

The poster child for such late-year M&A activity is the Alteryx, Inc. 8¾% senior notes due March 2028, which began climbing earlier in the week on news that the company has agreed to be acquired by Clearlake Capital Group LP for $4.4 billion.

Those bonds, which had been trading around par, prior to the acquisition news, subsequently shot up to around 106, the trader said.

They were up a further ¼ point in the early going on Wednesday, 106¼ bid, 106½ offered, having undergone a single trade on the morning, the source added.

Away from such topics it was Jingle all the way in junkland on Wednesday morning, the trader said, forecasting that the market’s liquidity would continue to thin into the holiday weekend ahead.

The new issue market sat idle on the morning, as expected, with 2023 issuance now believed to have run its course.

If late-2023 market conditions – especially the autumn’s duck-diving risk-free rates – carry over into the new year, then January should be a busy month for issuance, sources say.

Fund flows

High-yield ETFs had $261 million of daily cash inflows on Tuesday, according to a market source.

Actively managed high-yield funds sustained $34 million of outflows on the day.

With only Wednesday’s daily fund flow numbers remaining to go into the tally the combined funds are tracking $1.36 billion of net inflows for the week to Wednesday’s close, according to the market source.

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