Morning Commentary: Cash bonds down after FOMC decision; Tesoro offers $1.6 billion in drive-by

By Paul A. Harris

Portland, Ore., Dec. 15 – Cash bonds were down as much as ¼ point on Thursday, trailing the Federal Open Market Committee's unanimous Wednesday decision to raise interest rates to a range of 0.5%-0.75% from 0.25% to 0.5%, and its ostensible plans to bring three more increases during the year ahead, sources said at mid-morning.

Some of the energy junk deals that came earlier in the week were substantially lagging new issue prices, they added.

The Concho Resources Inc. 4 3/8% senior notes due Jan. 15, 2025 (Ba2/BB+) were 98 5/8 bid on Thursday.

The $600 million issue priced at par on Tuesday.

AmeriGas Partners, LP's 5½% senior bullet notes due May 20, 2025 (Ba3//BB) were 99¼ bid, 99¾ offered.

The $700 million issue, upsized from $550 million, also priced at par on Tuesday.

Looking back slightly further, the Antero Resources Corp. 5% senior notes due March 1, 2025 (Ba3/BB) were trading in a 98-handle range, a trader said.

The upsized $600 million issue (from $550 million) priced at par on Dec. 7.

High-yield ETFs were flat to slightly higher on the morning.

The iShares iBoxx $ High Yield Corporate Bd (HYG) was up 0.1%, or 8 cents, at $86.01 per share. The SPDR Barclays High Yield Bond ETF (JNK), at $36.25 per share, was up 0.08%, or 3 cents.

Busy primary

The primary market has at least five deals on deck, three of which are drive-bys announced on Thursday morning.

Tesoro Corp. plans to price a $1.6 billion two-part offering of senior notes.

The deal features seven-year notes with early guidance in the high 4% area and 10-year notes being guided in the 5% area.

Goldman Sachs & Co. is the left bookrunner.

Open Text Corp. plans to price a $250 million add-on to its 5 7/8% senior notes due June 1, 2026 (existing ratings Ba2/BB) via Barclays, RBC and Citigroup Global Markets Inc.

And Cincinnati Bell Inc. is in the drive-by market with a $150 million add-on to its 7% senior notes due July 15, 2024 (existing ratings B3/B) via Morgan Stanley & Co. LLC.

They join a slate of previously announced deals.

Two of those were announced late Wednesday.

Gulfport Energy Corp. is selling $600 million of 8.5-year senior notes via Credit Suisse Securities (USA) LLC, BofA Merrill Lynch, Barclays, KeyBanc, PNC, Scotia Capital (USA) Inc. and Wells Fargo Securities LLC.

And Diamondback Energy, Inc. plans to price $250 million of 8.5-year senior notes via Credit Suisse.

Mixed Wednesday flows

The cash flows of the dedicated high-yield bond funds were mixed on Wednesday, according to a portfolio manager.

High-yield ETFs sustained $96 million of outflows on the day, the manager said, adding that HYG, 50% of which is comprised of double B rated paper, sold off substantially following the Fed on Wednesday and the ensuing spike in Treasury yields. The 10-year was yielding 2.57% at mid-morning, after spiking to 2.63% earlier in the session, up from its pre-Fed level of 2.45%, the manager said.

Actively managed high-yield funds were positive on Wednesday, seeing a substantial $285 million of inflows on the session.

Sources expect a substantially positive weekly fund flows report later Thursday, when Lipper US Fund flows releases its weekly report on the flows of the dedicated junk funds.

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