Morning Commentary: Junk opens firm; ETFs stem big daily outflows; Adient on deck

By Paul A. Harris

Portland, Ore., Aug. 5 – Junk opened firm on Friday morning, according to a trader based on the East Coast of the United States.

High-yield ETFs were trading higher at mid-morning. The iShares iBoxx $ High Yield Corporate Bd (HYG) was up 0.38%, or 33 cents, at $85.68 per share. The SPDR Barclays High Yield Bond ETF (JNK), at $36.13 per share, was up 0.44%, or 16 cents.

Bonds in the energy sector were up half a point on the morning, this despite softness in crude oil prices, the trader said.

The barrel price of West Texas Intermediate crude for September 2016 delivery was off 0.91%, or 38 cents, at $41.55 at mid-morning.

Among Thursday's new issues, the Avon Products, Inc. 7 7/8% senior secured notes due Aug. 15, 2022 (Ba1/BB-) rocketed into the secondary market and were 104 bid, 105 offered on Friday morning, the trader said.

The Avon 7 7/8% secured notes went out Thursday at 102¼ bid, 102¾ offered after pricing earlier in the day at par, in an upsized $500 million issue (from $400 million).

The market had anticipated the upsize, partly because high-yield portfolios lately have tended to be underweight in the consumer products sector, sources said.

Also Avon posted solid earnings earlier in the week.

New bonds sold Thursday by SPX Flow, Inc. in a $600 million two-part senior notes deal (B1/BB) were also better on Friday.

The SPX Flow 5 5/8% notes due Aug. 15, 2024 were 101 5/8 bid, 102 1/8 offered at mid-morning. The long paper, the 5 7/8% notes due Aug. 15, 2026, were 101 7/8 bid, 102 3/8 offered.

Both were up 1¼ points on the morning, the trader reckoned.

The notes came in a pair of $300 million tranches and were priced at par on Thursday.

Adient on deck

Adient Global Holdings Ltd., the automotive seating and interiors business which Milwaukee-based Johnson Controls Inc. is spinning off, tweaked the tranche sizes and set final pricing in its $2 billion equivalent two-part senior notes offer (expected Ba3/confirmed BB) on Friday.

The deal, which is being helmed by global coordinator Citigroup, is set to allocate later Friday.

A €1 billion offering of eight-year bullet notes launched at 3½%. The euro tranche is upsized from an expected $1 billion equivalent. Final pricing comes at the tight end of the 3½% to 3¾% talk and tight to initial guidance in the low 4% yield context.

The dollar-denominated tranche, $900 million of 10-year notes with a Treasuries plus 50 bps make-whole call for the first five years then callable at a premium, launched at 4 7/8%. The dollar tranche is downsized from an expected $1 billion. Final pricing comes at the tight end of talk in the 5% area and tight to initial guidance in the low 5% area (see related story in this issue).

ETFs stem big outflows

The daily cash flows of the high-yield ETFs, which were strongly negative during the first three sessions of August, came in well above the balk line on Thursday, the trader said.

The ETFs saw $238 million of inflows on the day.

That inflow trails three consecutive large outflows: $397 million on Monday, $476 million on Tuesday and $357 million on Wednesday, sources say.

Actively managed high-yield funds, meanwhile, saw $175 million of outflows on Thursday.

The news comes on the heels of a late Thursday afternoon report from Lipper US Fund Flows that dedicated high-yield bond funds saw $2.46 billion of outflows for the week to Wednesday's close.

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