Morning Commentary: Junk rallies ahead of weekend; junk funds see Thursday outflows

By Paul A. Harris

Portland, Ore., July 15 – The high-yield bond market rallied in line with the surging stock market on Friday morning, sources said.

The high-yield index was up ¾ of a point while cash bonds tended to be ½ point to as much as 1½ points better on the morning, a trader said.

The Centene Corp. 3% senior notes due October 2030 traded at 85 on Friday morning, up 1½ points, the trader said, noting that the bond – illustrating the market's move higher – changed hands at 83½ on Thursday.

“The market feels better,” the trader said, adding that trading activity Friday morning was being driven by the exchange-traded funds.

Coupon payments and redemptions have left the high-yield accounts with cash to put to work, the source added.

Meantime the active new issue calendar has been desolation, itself.

Only one dollar-denominated deal has priced since the Independence Day holiday weekend, and it has traded well, the trader said.

The Garden SpinCo Corp. (Neogen Corp.) 8 5/8% senior notes due July 2030 (B2/BB) were wrapped around 104 on Friday morning.

On Wednesday those bonds were 102 bid, 102½ offered.

The $350 million issue priced July 6 at par.

It was priced well and has traded well, demonstrating that an issuer can still receive a good execution in the high-yield new issue market, the trader asserted.

However issuers have been scarce.

There was only one deal on the active calendar, heading into the weekend.

Camelot Return Merger Sub Inc. is on the road with $600 million of six-year non-call-two senior secured notes (B2/B) backing the buyout of Cornerstone Building Brands, Inc. by Clayton, Dubilier & Rice.

Initial guidance has those notes coming with an 8¾% coupon at a discount to yield 10½%.

The roadshow wraps up Tuesday, with pricing expected to follow later the same day.

Meantime Pegasus Merger Co., an affiliate of Apollo, is expected to show up during the last half of July with a deal backing the buyout of Tenneco Inc.

Over a week ago dealers were pre-marketing the high-yield portion of the debt financing.

However after generating a significant amount of buzz in the market late in the July 4 week and early in the present week the Tenneco deal has gone “radio silent,” sources say.

Thursday outflows

The dedicated high-yield bond funds sustained $605 million of daily net outflows of cash on Thursday, according to a market source.

High-yield ETFs saw $411 million of outflows on the day.

Actively managed high-yield funds sustained $194 million of outflows on Thursday.

News of Thursday's daily flows trails a Thursday report that the combined funds sustained $652 million of net outflows in the week to the Wednesday, July 15, close, according to the market source.

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