Morning Commentary: High-yield bonds drop in thin pre-holiday trading; KB Home outperforms

By Paul A. Harris

Portland, Ore., March 24 – Cash bonds were weaker in thin pre-holiday trading on Thursday morning as the high-yield bond market wound its way toward an early close ahead of the three-day Easter holiday weekend, a trader said.

“There are a lot of people out,” the trader remarked, adding that high-yield ETFs were selling, oil prices were lower and stocks were down.

Bonds were down at least a point, the source said, adding that energy, and minerals and mining were down 2 to 3 points, in certain names.

The high-yield ETFs were weaker at mid-morning on the East Coast of the United States. The iShares iBoxx $ High Yield Corporate Bd (HYG) was down 53 cents, or 0.64%, at $81.18 per share. SPDR Barclays High Yield Bond ETF (JNK), at $34.08 per share, was down 22 cents, or 0.64%.

KB Home rallies

The bonds of KB Home traded higher on news that the company put up strong numbers for the first quarter of this year.

KB Home’s 4¾% senior notes due May 15, 2019 were at 99½ bid on Thursday morning, up ½ point and outperforming the market.

The company reported on Wednesday that its total revenues grew 17% year over year to $678.4 million. Housing revenues increased 28% to $672.6 million. And the average selling price increased 5% to $344,400.

Recent issues languish

Away from headline trading, recent issues tended to be lagging their new issue prices in the secondary market.

Among deals priced on Wednesday, AMC Networks Inc.’s new 5% senior notes due April 1, 2024 (Ba3/BB) were at 99¼ bid, 99¾ offered on Thursday morning. The upsized $1 billion issue (from $750 million) priced at par on Wednesday.

The Constellium NV 7 7/8% senior secured notes due April 1, 2021 (B2/B+) were at 99 5/8 bid, par offered on Thursday.

The upsized $425 million issue (from $400 million) priced at par on Wednesday.

The new iStar 6½% senior notes due July 1, 2021 (B2/B) were at 98¾ bid, 99¾ offered.

The upsized $275 million issue (from $250 million) also priced at par on Wednesday.

Looking back a bit further, the CenturyLink, Inc. 7½% senior bullet notes due April 1, 2024 (Ba3/BB/BB+) were at 99 5/8 bid, par offered on Thursday, down from 101¼ bid early Wednesday, the trader said.

The upsized $1 billion deal priced at par on Tuesday. The amount was increased from $500 million.

Quiet primary

There was no news in the primary market on Thursday morning, as expected, given the early pre-holiday close, sources said.

The March-April crossover week will get underway to a comparatively thin calendar.

Western Digital Corp. is on the road with $5.6 billion of bonds in two tranches, a $1.5 billion tranche of split-rated seven-year senior secured notes (Ba1/BBB-/BBB-), which are being guided in the low 6% yield context, and a $4.1 billion tranche of straight speculative-grade eight-year senior unsecured notes (Ba2/BB+/BB+) guided in the 9% area.

There is wood to chop on the Western Digital deal, a trader said on Thursday, adding that the buzz in the market is that there are $2 billion of orders in the book across both tranches.

Mixed Wednesday flows

Cash flows for dedicated high-yield bond funds were mixed on Wednesday.

High-yield ETFs sustained a substantial $406 million of outflows on the day.

However asset managers saw $130 million of inflows on Wednesday.

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