Morning Commentary: Junk opens slightly weaker; recent deals mixed in thin Friday trading

By Paul A. Harris

Portland, Ore., Aug. 19 – A mid-August Friday found the junk market a touch weaker – unchanged to perhaps down 1/8 point at mid-morning – in thin trading, sources said.

High-yield ETF share prices were lower. The iShares iBoxx $ High Yield Corporate Bd (HYG) was down 0.2%, or 17 cents, at $86.68 per share. The SPDR Barclays High Yield Bond ETF (JNK), at $36.59 per share, was down a nickel, or 0.13%.

The bonds of Sprint Corp. continue to enjoy fair winds on reports that the CEO of Sprint owner Softbank Corp., Masayoshi Son, is hopeful that the post-election incoming chairman of the Federal Communications Commission might view a merger of Sprint with T-Mobile USA Inc. favorably, a trader said.

The Sprint 7¼% senior notes due Sept. 15, 2021 were 99 bid Friday morning, up a couple of points on the week, and up 9 points from a month ago at which time they were trading to yield 9¼%. Now they are trading to yield inside of 8%, the trader said.

Among recent issues, the new Tallgrass Energy Partners, LP 5½% senior notes due Sept. 15, 2024 (B1/BB+) were 101 3/8 bid, 101 5/8% offered on Friday morning, off slightly from 101½ bid on Thursday.

The Leawood, Kan.-based midstream energy master limited partnership priced $400 million of the paper on Thursday and was considering an upsize to $600 million, the trader said, adding that containing the issue size was a good thing because an upsized deal would likely have not traded as well.

Recent bonds issued from the Las Vegas hospitality sector were mixed.

The new MGM Resorts International 4 5/8% senior bullet notes due Sept. 1, 2026 (B1/BB-/BB) were 99 bid, 99¼ offered on Friday, according to the trader, who remarked that pricing on the deal was clearly squeezed.

The $500 million issue priced at par on Tuesday.

Meanwhile a pair of new issues from Diamond Resorts International, Inc. were showing decidedly mixed results in the secondary market, with the secured notes dramatically outperforming the unsecured notes.

The Diamond Resorts 7¾% senior secured notes due Sept. 1, 2023 (B1/B+) were par 1/8 bid, par ¼ offered on Friday. The upsized $500 million tranche – added after the company marketed an unsecured bond, only, and then upsized to $500 million from $400 million – priced at par on Wednesday.

Meanwhile the Diamond 10¾% senior unsecured notes due Sept. 1, 2024 (Caa1/CCC+) – the deal that Diamond initially took on the road – were 95½ bid, 96 offered on Friday. The $600 million tranche priced at 98.691 to yield 11%, also on Wednesday.

Overall it was a week that saw junk investors back away a bit from risk, with the triple C sector underperforming the rest of the index, a market source said.

Thursday inflows

The cash flows of the dedicated high-yield bond funds were positive on Thursday, a trader said.

High-yield ETFs saw $43 million of inflows on the day.

Actively managed funds saw $40 million of inflows on Thursday.

The news follows a weekly report from Lipper US Fund Flows, on Thursday, that the dedicated junk funds saw $889 of aggregate inflows for the week to Wednesday's close.

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