Morning Commentary: Junk trades lower in line with equities; ETFs see Tuesday outflows

By Paul A. Harris

Portland, Ore., Aug. 17 – Junk opened ½ point lower on Wednesday, in line with lower stock prices, according to market sources.

Negative economic and financial headlines were not difficult to find, said a bond trader in the New York area, who went on to list higher-than-expected inflation in the United Kingdom, ongoing economic weakness in China, and poor earnings in the U.S. retail sector.

With the S&P 500 stock index down 0.74% at mid-morning, the iShares iBoxx $ High Yield Corporate Bd (HYG) share price was down 0.78%, or 61 cents, at $77.82.

Bonds priced Tuesday by EnLink Midstream, LLC were off their highs while remaining above the new issue price, the trader said.

The EnLink 6½% senior bullet notes due September 2030 (Ba1/BB+/BB+) were par 3/8 bid, par 5/8 offered, down from par ½ bid, par ¾ offered at Tuesday’s close.

The upsized $700 million issue (from $500 million) priced at par.

Elsewhere, the new Ford Motor Co. 6.1% senior green notes (Ba2/BB+), which came in a high grade-style execution on Tuesday, were par bid, par ¼ offered, off of earlier levels of par ½ bid, par ¾ offered, according to the trader.

The $1.75 billion 10-year bullet deal priced at par in a Tuesday drive-by.

Meanwhile, in a deal that came on Monday, the Royal Caribbean Cruises Ltd. 11 5/8% senior notes due August 2027 (B3/B) were wrapped around 101 on Wednesday, the trader said, adding that they were 101 bid, 101½ offered on Tuesday.

The upsized $1.25 billion issue (from $1 billion) priced at par.

Among distressed paper, news that Endo International plc and certain of its subsidiaries initiated voluntary prearranged Chapter 11 proceedings, amid a debt restructuring related to the Dublin-based specialty pharmaceutical company's liabilities related to opioid litigation, lifted Endo's entire complex of bonds, the trader said, adding that trading in the name was very active.

Endo unsecured bonds, which trade for pennies on the dollar, were up 3 points to 4 points on the news, the source said.

Endo secured paper was up a point.

The Endo Pharmaceutical 9½% senior secured second-lien notes due July 2027 were 26 bid, 26½ offered, said the trader, adding that those notes had been trading in the low 20s earlier in the week.

The high-yield primary market, having seen $4.78 billion of week-to-date issuance, sat idle on Wednesday morning, and the active forward calendar remained empty.

The market continues to await a $1 billion offering from a company in the high-yield energy sector that would represent the left books debut of deal-runner B. Riley Financial, Inc., according to market sources.

That deal, which began being telegraphed to the market last week, is expected to be announced during the Aug. 22 week, a source said on Tuesday.

ETFs see Tuesday outflows

High-yield ETFs sustained a chunky $497 million of daily cash outflows on Tuesday after posting positive numbers for the previous three sessions of the present weekly reporting period ($666 million inflows on Monday, $188 million inflows last Friday and $327 million inflows last Thursday), according to a market source.

Actively managed high-yield funds posted $16 million of inflows on Tuesday, the source said.

With only Wednesday's daily flows remaining to go into the tally the combined funds are tracking $1.52 billion of net inflows for the week to Wednesday's close, according to the market source.

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