Primary still, market seen quiet, featureless ahead of Brexit vote; Freeport backs off gains

By Paul Deckelman and Paul A. Harris

New York, June 22 – The long shadow of Britain’s “Brexit” referendum fell over Junkbondland on Wednesday, market participants said.

High yield syndicate sources said that primaryside activity was stilled ahead of Thursday’s vote in the United Kingdom on whether or not that country should pull out of the European Union, severing political and economic ties in place since the early 1970s.

They anticipate nothing getting done until a clear result emerges from the hard-fought plebiscite, which is expected to have international economic ramifications, win or lose.

Secondary traders also cited the British vote as a key factor throwing a damper over their market.

They said there was only limited activity in recently priced new deals, with Monday’s issue from propane distributor AmeriGas Partners, LP probably the busiest of the lot, but with little real price action.

Freeport-McMoRan Copper & Gold Inc., whose bonds had firmed smartly on Tuesday on market buzz about possible asset sales, was seen in retreat late Wednesday as investors took some profits on those gains.

BMC Software, Inc.’s bonds pushed upward by several points, though on no real volume and no firm news seen about the business software company.

Statistical market performance measures were mixed for a second straight session on Wednesday, their fifth mixed session in the last six trading days. They had turned mixed on Tuesday after having been decisively higher across the board on Monday.

Quiet run-up to Brexit

The new issue market remained becalmed by the pending Brexit referendum.

Dealers and issuers are in discussions, a New York-based debt capital markets banker said on Wednesday afternoon.

However, there was no new issue news to announce at Wednesday's close.

And Thursday, the day of the Brexit vote, may come and go without news as well, the banker added.

Cash inflows on Tuesday

The cash flows of the dedicated high-yield bond funds were positive on Tuesday, the most recent session for which data was available at press time, a trader said.

High-yield exchange-traded funds saw $207 million of inflows on the day.

Asset managers saw $30 million of inflows on Tuesday, after sustaining a whopping $540 million of outflows on Monday.

Dedicated bank loan funds were negative on Tuesday, the trader said. The loan funds sustained $20 million of outflows on the day.

Brexit vote stills secondary

In the secondary market, traders were citing the looming British vote as a major factor restraining activity.

“There was nothing going on,” a trader said, using a profanity to give his assessment of what the market was like.

“Brexit was a factor,” he declared.

A second trader agreed, noting that “it was pretty quiet, and with Brexit, I would expect more of the same tomorrow [Thursday].”

He said, “I don’t think anyone wanted to place any bets” by taking positions, “not before tomorrow night,” when the close referendum’s results may finally be known.

Some contrarian voices have said that the outcome of the vote really would not have that great an impact, particularly in the mostly U.S.-based junk market, since even a vote to leave the European Union rather than to remain would not trigger any abrupt change in the status quo. (At least a year or two of intense and complicated negotiations between Britain and the European Union would be required for an orderly separation.) However, this trader was not buying that argument.

“There’s going to be a whipsaw reaction right away,” he predicted, “and if they vote to exit, the financial markets are going to be volatile on Friday.”

He said that there will be some volatility either way but that a vote in favor of pulling the world’s fifth-largest economy and the European Union’s second-biggest, behind Germany, out of that trans-national bloc “will cause a very serious down move,” particularly in riskier asset classes such as stocks and speculative-grade bonds.

AmeriGas little changed

Among specific secondary names, a trader said that Monday’s megadeal from AmeriGas Partners was probably the busiest name among recently priced deals, “but they weren’t really doing much there.”

He saw the company’s 5 7/8% notes due 2026 and its 5 5/8% notes due 2024 “both generically between par and 100½.”

A second trader saw the 5 7/8% notes around 100¼ bid, with around $25 million traded, and the 5 5/8% notes “trading in the same context,” with about $12 million having changed hands.

Those volume levels were well down from Tuesday, when around $75 million of the 5 7/8% notes and more than $63 million of the 5 5/8% notes had traded.

AmeriGas, a Valley Forge, Pa.-based retail propane distributor, priced its $1.35 billion of new paper at par in a quick-to-market offering on Monday, split into a pair of equally sized $675 million tranches.

Freeport backs down

A trader said that Freeport-McMoRan’s paper was seen lower all around on Wednesday. On Tuesday, it had pushed up by more than 1 point pretty much across its capital structure, helped by firmer oil prices and market talk that the Phoenix-based energy and metals mining company might consider asset sales.

He said that it was “quite possible” that investors who had notched gains on Tuesday were taking some profits on Wednesday.

He quoted its 3.55% notes due 2022 down 1 point at 86½ bid, with over $24 million traded, while its 3 7/8% notes due 2023 lost ½ point to end at 86 bid, on $19 million of volume.

BMC gains

A trader said BMC Software’s 9% notes due 2019 gained 3½ points to end at 86 bid, but on only a handful of large trades.

He had not seen any fresh positive news out on the Houston-based software company.

Indicators stay mixed

Statistical market performance measures were mixed for a second straight session on Wednesday, their fifth mixed session in the last six trading days. They had turned mixed on Tuesday after having been decisively higher across the board on Monday, when they had seemingly broken out of their recent rut of three consecutive mixed sessions and three lower sessions in a row before that.

The KDP High Yield Daily index lost 11 basis points on Wednesday to end at 67.75, its second successive setback. On Tuesday, it had retreated by 2 bps, after having jumped by some 50 bps on Monday, its first gain after six straight sessions on the downside.

Its yield widened by 5 bps to 6.13%, after having risen by 2 bps on Tuesday, versus Monday’s 17 bps tightening – which in turn had followed five widenings over the previous six sessions.

The Markit Series 26 CDX North American High Yield index posted its first loss after four straight gains on Wednesday, easing by 1/8 point to finish at 102¾ bid, 102 25/32 offered. The recent gains followed five straight losses.

The Merrill Lynch North American High Yield Master II index remained choppy, firming by 0.24% on Wednesday after having lost 0.036% on Tuesday. That loss in turn had followed Monday’s hefty 0.697% strengthening, its second straight advance.

Wednesday’s gain raised the index’s year-to-date return to 9.322% from Tuesday’s 9.06%, although that cumulative gain remained off from its peak level for the year so far of 9.433%, set on June 8.

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