Morning Commentary: Junk market firms in final March session as ETFs look for paper

By Paul A. Harris

Portland, Ore., March 31 – The high-yield bond market was up ¼ point in the early going on Friday, a New York bond trader said.

The final session of March, and of 2023's first quarter, saw the high-yield ETFs looking for paper, as traders worked their way through offers-wanted-in-competition (OWICs), the source added.

With the S&P 500 stock index up 0.54% at mid-morning, the Shares iBoxx $ High Yield Corporate Bd (HYG) share price was up 0.58%, or 43 cents, at $75.17.

The new issue market was quiet heading into the weekend.

However, in the wake mid-March's catastrophic events in the banking sector, the junk primary market did manage to reopen, if only just, during the final week of the month.

On the week, two issuers raised a combined $597 million of proceeds.

The most recent, EnLink Midstream, LLC, with the highest speculative-grade credit ratings, easily fit the credit profile for issuers that presently retain access to the new issue market, sources say.

On Thursday the company printed $300 million of add-on paper (Ba1/BB+/BBB-) as it tapped its issue of 6½% senior bullet notes due Sept. 1, 2030.

The add-on notes, which priced at 99, were par 1/8 bid, par 5/8 offered on Friday morning, up 1/8 point to as much as ¼ point, the trader said.

EnLink priced its add-on in a drive-by execution that was heard to be four-times oversubscribed, a market source said.

The week's only other issuer, however, did not fit the above-mentioned credit profile but nevertheless managed to get its deal done.

On Tuesday LABL, Inc., which does business as Multi-Color Corp., priced a $300 million issue of 9½% senior secured notes due Nov. 1, 2028 (B2/B-) at par, at the tight end of talk, well inside of early guidance and on an accelerated timeline.

Those bonds were also commanding a premium in Friday’s thin trading, according to the trader in New York, who had them trading into a par ¾ bid.

Fund flows

High-yield ETFs saw $269 million of daily cash inflows on Thursday, according to a market source.

Actively managed high-yield funds, however, sustained $50 million of outflows on the day.

News of Thursday’s daily cash flows follows a Thursday afternoon report that the combined funds sustained $2.14 billion of net outflows during the week to the Wednesday, March 29 close, according to fund-tracker Refinitive-Lipper.

That represents the sixth outflow from the junk funds in the past seven weeks, a trader said.

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