Morning Commentary: Junk opens flat as weak jobs numbers kindle stimulus expectations

By Paul A. Harris

Portland, Ore., Jan. 8 – The high-yield index opened unchanged trailing a Labor Department report that the U.S. economy lost 140,000 jobs in December, the first loss since April, with unemployment holding steady at 6.7%, a junk bond trader said.

Because the news on the jobs front is negative, investors anticipate further economic stimulus from the government as a remedy, which should serve to buoy prices in the capital markets, the trader remarked.

The iShares iBoxx $ High Yield Corporate Bd (HYG) share price was unchanged at $87.24 at mid-morning.

Bonds priced in Thursday drive-by deals were strong in Friday morning trading.

A pair of issues from Hilcorp Energy I, LP and Hilcorp Finance Co. that came in an upsized $1.2 billion (from $1 billion) unsecured deal (Ba3/BB-) were trading at smart premiums to new issue prices.

The Hilcorp 5¾% notes due February 2029 and the 6% notes February 2031 were both 102 3/8 bid, 102 7/8 offered, the trader said.

Both came at par, pricing through price talk, in tranches that were upsized to $600 million from $500 million.

Elsewhere the new Lamar Advertising Co. 3 5/8% senior notes due January 2031 (B1/BB-) were par 3/8 bid, par ¾ offered in active trading.

The $550 million issue priced at par, tight to talk, on Thursday.

Away from the most recent issues, investors appeared to be holding their water in the face of a Thursday report that several of Carnival Corp.'s cruise lines were extending their sailing hiatuses, in Thursday's Wall Street Journal.

The Carnival 11½% first priority notes due April 2023 were 114½ bid, 115 offered on Friday morning, with not a lot of recent activity, said the trader, who added that they were off about a point from their high of 116 bid, in December.

The $4 billion of Carnival 11½% first priority notes priced on April 1, the first deal out of the gate as the market reopened after early news of the pandemic had shuttered it in mid-to-late March.

In all, Carnival – in the bullseye of economic fallout from coronavirus – made five separate passes at the primary market in 2020, issuing in both dollar- and euro denominations.

The sole unsecured deal came in mid-November: $1.45 billion and €500 million 7 5/8% notes due March 2026.

Both priced at par.

The dollar-denominated 7 5/8% notes were 107 5/8 bid, 108 1/8 offered on Friday morning, with not a lot of recent activity but down about a point from year-end, the trader said.

The suspensions reported in the Thursday Journal story impact Carnival, as well as other cruise lines, exacerbating the revenue drought that the sector has suffered during the seasons of Covid-19.

The primary

The active new issue calendar featured just one deal set to clear ahead of the coming weekend.

Urban One, Inc. is expected to price an $825 million offering of seven-year senior secured notes (B3/B-).

The deal is talked to yield in the 7½% area, inside of initial guidance in the 8% area.

Orders for the Urban One notes were heard to be approaching $3 billion, the trader said.

Look for activity to ramp up in the new issue market during the week ahead, sources say.

In Europe the new issue market passed a quieter-than-expected first week of the New Year, a London-based senior debt capital markets banker said.

Investors in Europe were keenly tuned into the unfolding Senate runoff race in the state of Georgia for a pair of seats in the U.S. Senate, the banker said.

With the mayhem in Washington D.C., which followed close on the heels of those runoff results, people were unable to take their eyes off of the television, the source remarked.

Look for new issue activity in Europe to pick up significantly in the week ahead, the banker advised.

European primary market business for the Jan. 11 week is expected to included Verisure Holding AB's €2.42 billion of notes. The debt refinancing deal features up to €1.15 billion of secured notes and up to €1.27 billion of unsecured notes.

Thursday inflows

The dedicated high-yield bond funds saw $77 million of daily net inflows on Thursday, according to a market source.

Actively managed high-yield funds saw $110 million of inflows on the day.

However high-yield ETFs sustained $33 million of outflows on Thursday, the source said.

News of Thursday’s daily flows trails a Thursday report that the combined funds sustained $196 million of net outflows in the week to the Wednesday, Jan. 6 close, according to the Refinitiv Lipper Fund Flow Report Newsline.

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