Morning Commentary: Junk improves amid Treasury yield spike; Canpack notes active

By Paul A. Harris

Portland, Ore., March 25 – With Treasury yields spiking on Friday morning, the junk bond market was up ¼ point to ½ point, according to a sellside source in New York.

Trades have been concentrated in bigger block names, the source said, adding that volume across the broad market remains muted.

Investors are reluctant to sell and mark down their positions; so, with no new issue calendar, there’s a little bit of a freeze here, the sellsider remarked.

Bonds of Canpack Group, a beverage packaging company domiciled in Krakow, Poland, with operations in the United States, were active on Friday morning, the sellsider said.

The Canpack SA/Canpack US LLC 3 7/8% senior notes due November 2029 were trading around 85, the level to which they fell on Thursday as the market digested news that company purchases aluminum from Russia.

On Wednesday they were trading at 91, 6 points higher, the sellsider recounted, adding that a view seemed to be taking shape that the company's exposure to Russia does not represent a life-and-death obstacle to its operations, and the bonds may be oversold.

The Canpack deal came at par early last October in an $800 million issue, which the company floated in order to fund the construction of a new plant in Muncie, Ind., and to expand its plant in Olyphant, Pa.

Although the primary market has been operating at a crawl, there have been several deals in the past couple of weeks.

Among the most recent issues, the Owens & Minor, Inc. 6 5/8% senior notes due April 2030 (B2/B/BB-) were 101½ bid, 102¼ offered, the sellsider said.

The $600 million issue came at par in an oversubscribed deal that priced on Wednesday.

The Yum! Brands, Inc. 5 3/8% senior notes due April 2032 (Ba3/BB) were par bid, par 1/8 offered on Friday morning, trading at or just above the new issue price.

The upsized $1 billion issue (which doubled from the announced $500 million size) came at par with sufficient demand to entice the issuer and the dealers to price it on the screws, the sellsider said, adding that had the deal come at 5½%, the middle of price talk (initial guidance was in the mid-to-high 5% area) the new Yum! notes due 2032 would likely be trading much better.

There was no primary market news in the early going on Friday.

Fund flows

High-yield ETFs saw $364 million of inflows on Thursday, according to a market source.

However actively managed high-yield funds saw negative cash flows on Thursday, sustaining $141 million of outflows on the day, the source said.

News of Thursday’s daily cash flows follows a Thursday afternoon report that the combined funds sustained $2.698 billion of net outflows during the week to the Wednesday, March 23 close, according to Refinitiv Lipper.

That was the ninth outflow in the past 11 weeks to top the $1 billion mark, according to the market source, who added that the total during that period is negative $24.2 billion, or 9% of assets under management for funds that report to Lipper on a weekly basis, a new record for that interval, surpassing the $20.1 billion of outflows sustained in the period ending March 25, 2020.

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