Morning Commentary: Crude price advance lifts oil-related names; funds see outflows

By Paul A. Harris

Portland, Ore., Dec. 4 – In a junk bond market that may already be feeling the grip of late-year low liquidity, energy names were better bid on Tuesday as crude oil prices extended a rally that got underway at the beginning of the week, a New York-based trader said.

News that the government of Alberta announced oil production cuts, coming on the heels of an agreement between Russia and Saudi Arabia to trim production, had crude prices continuing to march north on Tuesday morning.

The barrel price of West Texas Intermediate crude for January 2019 delivery was up 0.81%, or 43 cents, at $53.38 at mid-morning.

The bonds of offshore driller Transocean Inc. (RIG) were up half a point on the morning, the trader said, spotting the Transocean 9% senior notes due July 2023 at 104¼ bid.

The California Resources Corp. 8% senior secured second-lien notes due December 2022, which generally track crude oil prices, were gyrating, the trader said, marking them 78 bid at mid-morning, up ¼ point.

Away from the oil patch, the bonds related to the merger of RegionalCare Hospital Partners Holdings, Inc. and LifePoint Health, Inc. remain active in the secondary market, the trader said.

The RegionalCare 9¾% senior notes due December 2026 were slightly better on the morning at par bid, par 1/8 offered.

Those bonds, which came at par on Nov. 14, traded as low as 97 3/8 in the interim, the trader recounted.

Part of the deal's appeal were the investor-friendly covenant changes brought in order to help the bonds across the finish line, sources say.

Empty active calendar

Against a backdrop of softer equity prices, the high-yield market was unchanged at mid-morning and very quiet, the trader said.

The iShares iBoxx $ High Yield Corporate Bd (HYG) was down 0.29%, or 24 cents, at $83.56 per share.

The new issue market was shuttered in the early going on Tuesday, and the active forward calendar was empty.

The motivation to reactivate the primary market ahead of the new year appears thin, according to the trader in New York, in spite of assertions from syndicate bankers that a late-2018 issuance window is presently open and should remain so until at least Dec. 14.

The backdrop for doing a deal could be worse, a syndicate official asserted, pointing to a sub-3% yield on 10-year Treasuries, better crude oil prices and a reason to hope that a trade war between China and the United States might be averted.

Monday outflows

The daily cash flows of the dedicated high-yield bond funds were negative on Monday, a trader said.

High-yield ETFs sustained $399 million of outflows on the day.

Actively managed high-yield funds saw $225 million of outflows on Monday, the trader said.

With three days of the present five-day reporting period tallied, the combined funds were tracking $555 million of week-to-date outflows, the source added.

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