Morning Commentary: Volvo brings €500 million green notes; broader junk bond prices slip

By Paul A. Harris

Portland, Ore., May 24 – For the first time in a week the lights came up in the euro-denominated primary market on Tuesday.

Volvo Car AB (Ba1/BB+) launched a €500 million offering of six-year unsecured green bonds at 4 3/8%, tighter than the 4¾% to 4 7/8% initial guidance.

The offer was heard to be playing to €1.2 billion of demand.

It represents Volvo’s second issue of unsecured green notes. In September 2020 the company placed €500 million of 2½% unsecured green notes due October 2027.

The new Volvo offering is the first euro-denominated deal in a week. Elis SA priced a €300 million issue of 4 1/8% senior bullet notes due May 2027 on May 17.

Volvo was Tuesday morning's only primary market news on either side of the Atlantic ocean.

Away from the new issue news, it was heavy going in the high-yield bond market, sources said.

Prices were being marked down ½ point to a full point in thin trading, according to a bond trader.

Among issues of more or less recent vintage, the Carvana Co. 10¼% senior notes due May 2030 (Caa2/CCC) changed hands at 83½ on Tuesday morning, down 2 points, the trader said.

Carvana priced $3.275 billion of the 10¼% notes (upsized from $2.275 billion) in late April, with Apollo Global Management reported to have taken down nearly half, or $1.6 billion, of the upsized issue.

Stagflation news continues to keep the high-yield retail sector under pressure, the trader said.

With its stock down 30% on the morning, Abercrombie & Fitch Co.’s bonds were down around ¼ point, the source said, marking the Abercrombie & Fitch Management Co. 8¾% senior secured notes due July 2025 at 102¼.

The Ohio-based lifestyle retailer priced the relatively small issue ($350 million) in June 2020.

The Victoria's Secret & Co. 4 5/8% senior notes due July 2029 were down a point on the morning, the trader said.

One particular retailer was bucking the trend.

The PetSmart LLC/PetSmart Finance Corp. 7¾% senior notes due February 2029 were up ¼ point, wrapped around 88, in active trading.

The reason for the move was not readily apparent, according to the trader, who noted that the company is privately held, and as such its financial disclosures might be prone to circulate the market at a more measured pace than those of publicly held companies.

Fund flows

The dedicated high-yield bond funds sustained $262 million of net outflows on Monday, according to a market source.

Actively managed high-yield funds saw $251 million of outflows on the day.

High-yield ETFs sustained $11 million of outflows on Monday, the source said.

The combined funds are tracking $235 million of net outflows for the week that will conclude with Wednesday's close, according to the market source.

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