Morning Commentary: Enterprise Development Authority on roadshow; Junk ETFs see big Monday outflow

By Paul A. Harris

Portland, Ore., June 19 – High-yield bonds traded lower on Tuesday, with the global capital markets in the throes of volatility sparked by heightened trade war concerns following an announcement by president Donald Trump that $200 billion of Chinese goods would be subjected to additional tariffs, set to go into effect unless China alters its trade practices.

High-quality junk bonds were down around 1/8 point, with higher beta paper off ¼ point to ½ point, according to a bond trader.

Some names were down even more, the trader said.

High-yield ETFs were lower on the morning. The iShares iBoxx $ High Yield Corporate Bd (HYG) was down 0.14%, or 12 cents, at mid-morning, trading at $85.99 per share.

High-yield ETFs saw a whopping $815 million of daily outflows on Monday, an investor said. The cash flows of high-yield asset managers were flat to slightly positive on Monday, at plus-$5 million, the source added.

Recent new issues were a mixed bag, the investor said, adding that credit quality, pricing efficiency and the size of the coupon are all factoring in.

The Aleris International, Inc. 10¾% senior secured junior priority notes due July 2023 (Caa2/CCC+) were marked at 101¾ bid. The $400 million issue priced at par on June 8, having generated a book that was two-times deal size at initial talk in the 11¼% area, sources said.

Meanwhile the Callon Petroleum Co. 6 3/8% senior notes due July 2026 (B3/B+) were marked below new issue price at 99 1/8 bid, off about a point on Tuesday.

As is the case with much of the high-yield energy sector, the $400 million Callon Oil deal, which priced at par on May 31, has tended to trade in close correlation with oil prices, the investor said.

The barrel price of West Texas Intermediate crude oil for July 2018 delivery was down 96 cents, or 1.46% at $64.89, at mid-morning Tuesday.

EDA starts roadshow

With volatility rocking the markets, news on the new issue front was muted on Tuesday morning.

Enterprise Development Authority, the issuing authority of the California-based Estom Yumeka Maidu tribe, began a roadshow for a $440 million offering of five-year senior secured notes.

The project financing deal, via bookrunner Wells Fargo Securities LLC, is expected to price in the early part of the July 25 week.

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