Junk bond rally continues; Twitter improves; AMC jumps; rate-sensitive names higher

By Paul A. Harris and Abigail W. Adams

Portland, Me., Feb. 25 – While the high-yield secondary space closed a head-spinning week on firm footing, the primary market remained sidelined with only one deal clearing the market throughout the week.

BellRing Distribution, LLC withdrew its planned offering of $840 million 10-year senior notes (B3/B), citing market volatility.

However, deals are expected in the coming week.

Meanwhile, the tone in the secondary space continued to improve on Friday as a risk-on sentiment returned to the market.

The market gained another 3/8 point on Friday to close a volatile week that saw the high-yield market break to new lows with gains, a source said.

Twitter, Inc.’s 5% senior notes due 2030 (Ba2/BB+), the first deal to hit the secondary space in over a week, continued to dominate activity with the notes improving alongside the broader market.

AMC Entertainment Holdings, Inc.’s 10% senior secured second-lien notes due 2026 (Caa3/CCC-) jumped in active trading.

Several rate-sensitive names were also improved in active trading on Friday as buyers reentered the space.

Primary market eyed

Although the high-yield bond secondary market saw good follow-through on Friday from its late Thursday rally, the new issue market remained sidelined ahead of the weekend.

In the absence of a calendar the market's attention has shifted to the trade in existing issues, sources said on Friday.

The week's big primary market news was Wednesday's $1 billion issue of 5% eight-year unsecured bullet notes priced by Twitter, the first deal to clear the market in a fortnight.

The most recent new issue news in the market was negative.

Having run a brief roadshow, BellRing Distribution withdrew an $840 million offering of 10-year senior notes (B3/B) amid the Thursday market volatility that followed Russia's invasion of the Ukraine.

As for the week ahead in the primary market it remains to be seen whether issuers will be willing to step in front of the geopolitical and financial uncertainty that bedeviled the markets in the past week, a sellside source said on Friday.

The answer is probably “yes,” the source added.

Twitter gains

After a volatile break, Twitter’s 5% senior notes due 2030 continued to improve in active trading on Friday.

The notes were up another ¼ point to change hands in the par ½ to par ¾ context heading into the market close.

There was more than $40 million in reported volume.

The notes played to heavy demand during bookbuilding with the BB notes pricing cheap, a source said.

While the notes were flat on the break, they embodied the volatility of Thursday’s session. The notes were marked at 98 bid early Thursday but closed the day on a par-handle.

AMC jumps

AMC Entertainment’s 10% senior secured second-lien notes due 2026 jumped in active trading on Friday.

The notes rose almost 3 points to close the day wrapped around 93.

There was $18 million in reported volume.

The company’s capital structure was participating in the risk-rally with stock up more than 12% on Thursday.

Rate-sensitive names improve

Several badly battered issues with low coupons from higher-quality credits outperformed on Friday as buyers returned to the space and the market tempered its rate hike predictions.

Charter Communications’ 4¼% senior notes due 2034 (B1/BB) rose 1¾ points to close the day at 91½, according to a market source.

The large, liquid issue was active with $15 million in reported volume.

The notes are a poster child for the sell-off in rate-sensitive notes. The notes were on a 98-handle heading into January but have steadily trended lower alongside the broader market.

Kraft Heinz Co.’s split-rated 4 3/8% senior notes due 2046 (Baa3/BB+) rose ¾ point to return to a 102-handle.

The notes were changing hands in the 102¼ to 102¾ context heading into the market close with the yield about 4.2%.

There was $14.5 million in reported volume.

$758 million Thursday outflows

High-yield ETFs sustained $758 million of daily cash outflows on Thursday, the most recent session for which data was available at press time, according to a market source.

Actively managed high-yield funds, however, put up strong positive fund flow numbers on the day, posting $350 million of inflows on Thursday, the source said.

News of Thursday's daily flows follows a Thursday afternoon report that the combined funds sustained $996 million of net outflows – including $494 million of outflows from the ETFs – in the week to the Wednesday, Feb. 23 close, according to Refinitiv Lipper.

Those weekly outflows extend the run of negative weekly cash flows from the junk funds to seven weeks, during which time they sustained $17.7 billion of net outflows, the most significant run of negative flows since the period ending March 25, 2020, according to the market source.

Year to date the cash flows of the junk funds were negative-$18.9 billion, including $10.7 billion from the ETFs, at Thursday's close, the source said.

That follows the $13.2 billion of total net outflows that the junk funds sustained in the full year of 2021.

Indexes

The KDP High Yield Daily index jumped 38 points to close Friday at 62.59 with the yield now 5.14%.

The index fell 19 points on Thursday, shaved off 1 point on Wednesday and slid 10 points on Tuesday.

The index posted a gain of 8 points on the week.

The CDX High Yield 30 index climbed 45 basis points to close Friday at 105.85.

The index rose 44 bps on Thursday after falling 18 bps on Wednesday and 24 bps on Tuesday.

The index posted a cumulative gain of 47 bps on the week.

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