Morning Commentary: High-yield bond market seen firmer as buyers outnumber sellers

By Paul A. Harris

Portland, Ore., March 17 – Junk bonds opened firmer on Thursday, according to a trader in New York, who was marking the broad market up 1/8 of a point to ¼ of a point, with the high-yield index 1/8 of a point better at mid-morning.

The advance was broad-based, with buyers outnumbering sellers, the trader said.

Offers-wanted-in-competition (OWICs) were emerging from the high-yield ETFs, the source added.

The bonds of March's biggest issuer to date, Macy's Retail Holdings LLC, were higher on the morning.

The Macy's 6 1/8% senior notes due March 2032 were wrapped around par, up about a point on the day, the trader said.

The shorter dated tranche, the Macy's 5 7/8% senior notes due March 2030, were also wrapped around par, up about ¼ of a point.

Macy's new senior notes (Ba2/BB/BBB-) came at par on March 2, in tranches sized at $425 million apiece.

Meanwhile, the Twitter, Inc. 5% senior notes due March 2030 (Ba2/BB+) were wrapped around 99 at mid-morning, up ½ point to 1 point, although only a small amount had changed hands, the trader said.

The biggest deal to price since mid-February, Twitter's $1 billion issue priced at par on Feb. 23, the day before Russia invaded the Ukraine.

Crude oil prices continued their impressive gyrations on Thursday morning, with the barrel price of West Texas Intermediate crude up $7, at 103.03, 7.35% higher on the morning after falling below $95 on Wednesday.

In line with those higher prices, energy names in the high-yield universe tended to be ¼ point to ½ point higher on the morning, the trader said.

The new issue market remained inactive, with only one new issue having priced since the beginning of the week.

Just one deal remains on the active forward calendar.

SPX Flow Inc. (Redwood Star Merger Sub. Inc.) has been shopping a $570 million offering of eight-year senior notes (Caa2/CCC) – initial guidance in the high 8% to 9% area.

The deal seems to be facing headwinds, according to a sellside source, who added that the order book was heard to be closing in on deal size on Wednesday.

If there is a deal it will probably come somewhat wide to that early guidance, with tightened covenants, the source added.

There are other deals to be done, sources say, pending market conditions.

Mixed fund flows

The cash flows of the dedicated high-yield bond funds were mixed on Wednesday, according to a market source.

High-yield ETFs saw $55 million of inflows on the day.

However actively managed high-yield funds remained negative, sustaining $230 million of outflows on Wednesday.

Those negative flows for the actively managed funds follow the $250 million of outflows they sustained on Tuesday and $102 million of outflows on Monday.

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