Junk bond trading weakens following Fed minutes; Ford, EnLink, Solenis hold premiums

By Paul A. Harris and Abigail W. Adams

Portland, Me., Aug. 17 – The high-yield primary market, having seen $4.78 billion of week-to-date issuance, sat idle on Wednesday, 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.

Meanwhile, the secondary space was again soft on Wednesday with the market reassessing the dovish pivot that drove the rally of the past three weeks following the release of the Federal Reserve’s July meeting minute notes.

The market opened down ½ point in a general de-risking ahead of the 2 p.m. ET release.

There was some “knee-jerk” buying action immediately following the release; however, selling resumed after Treasuries failed to rally with the market closing where it began – down ½ point.

While interpretations continue to vary, the Federal Reserve minute notes seemed to strike a hawkish tone with the Central Bank affirming its commitment to fight inflation.

“It seems like they’re really trying to warn the market,” a source said.

Dialed-back expectations for future rate hikes following the Federal Reserve’s 75 basis points rate increase in July fueled the massive rally in risk assets that lifted the high-yield market by more than 4 points.

However, there is widespread disagreement about the so-called dovish pivot with Federal Reserve officials continuing to warn that rate hikes will continue.

The market rally of the past few weeks seemed to be in violation of a cardinal rule of trading – ‘don’t fight the Fed,’ a source said. “Well, the market has been fighting the Fed for a month,” the source said.

The Jackson Hole Economic Symposium will be a closely watched event next week, a source said.

While the macro-outlook was the focus of the broader market, new paper was the focus of trading activity in the secondary space with the deals to clear the primary market on Tuesday holding up well despite the soft day for the market.

Ford Motor Co. 6.1% senior green notes due 2032 (Ba2/BB+), EnLink Midstream, LLC’s 6½% senior bullet notes due 2030 (Ba1/BB+/BB+) and Cheever Escrow Issuer, LLC’s (Solenis) 7 1/8% senior secured notes due 2027 (B2/B-) remained above water in high-volume activity.

More Ford

Ford’s 6.1% senior green notes due 2032 maintained a premium in high-volume activity although the notes were poised to close well off the apex of the day.

The 6.1% notes were changing hands in the par to par ¼ context early in the session.

The notes briefly spiked up to par ¾ after the release of the minute notes.

However, they quickly came in as the brief rally failed to hold.

The notes were marked at par 3/8 bid, par 5/8 offered heading into the close, a source said.

While Ford’s new paper was above water on Wednesday, the deal is expected to struggle with the BB-index expected to widen from its current tights and the market saturated with Ford paper, a source said.

“So many people are already so full of the name,” the source said.

Ford Motor priced a $1.75 billion issue of the 6.1% notes at par on Tuesday.

The yield printed on top of yield talk.

EnLink eyed

EnLink Midstream’s 6½% senior bullet notes due 2030 closed Wednesday with a slight premium although the notes were flat for most of the session.

The 6½% notes were locked at par in heavy trading early Wednesday.

However, the notes were lifted into the close and ended the day at par ¼ bid, par ¾ offered.

The notes looked cheap for a high-quality midstream company, a source said.

They are expected to improve on a stronger day for the market.

EnLink priced an upsized $700 million, from $500 million, issue of the 6½% notes at par in a Tuesday drive-by.

The yield printed at the tight end of the 6½% to 6 5/8% yield talk.

Solenis tucked away

Solenis’ 7 1/8% senior secured notes due 2027 were trading above their discounted issue price on Wednesday.

However, the small issue appeared to be tucked away after a flurry of activity early in the session.

The 7 1/8% notes were changing hands on a 99-handle with the notes marked at 99¼ bid, 99½ offered, a source said.

The notes were active early in the session; however, activity in the name died down as the session progressed with no markets in the street by the afternoon.

The small issue was most likely tightly allocated and tucked away after a couple of flips early in the session.

Solenis priced a $325 million issue of 7 1/8% five-year senior secured notes (B2/B-) at 99 to yield 7.361% on Tuesday.

The coupon came tight to the 7¼% coupon talk. The price came on top of price talk. The yield came tight to the 7.49% yield talk.

$497 million 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.

Indexes

The KDP High Yield Daily index fell 36 points to close Wednesday at 57.26 with the yield now 6.47%.

The index shaved off 9 points on Tuesday and gained 3 points on Monday.

The ICE BofAML US High Yield index fell 51.9 bps with the year-to-date return now negative 8.021%.

The index slid 15.8 bps on Tuesday after gaining 18.3 bps on Monday.

The CDX High Yield 30 index fell 63 bps to close Wednesday at 101.94.

The index was down 47 bps on Tuesday and 9 bps on Monday.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.