Morning Commentary: Junk bonds open flat; Tuesday's oversubscribed deals trade well

By Paul A. Harris

Portland, Ore., Aug. 26 – Against a backdrop of rising Treasury yields, junk bonds opened flat on Wednesday, traders said.

The iShares iBoxx $ High Yield Corporate Bd (HYG) was flat at $85.21 per share, down a penny, or 0.01% at mid-morning.

The markets await a Thursday speech by Federal Reserve Bank chairman Jerome Powell for any indication that the central bank is focused on the threat of inflation, which could impact its rate-setting decisions going forward, a trader said.

Meanwhile new high-yield issues priced in oversubscribed Tuesday transactions were turning in notable secondary market performances on Wednesday.

The new TreeHouse Foods, Inc. 4% eight-year senior notes (Ba2/BB-) were 101 5/8 bid, 101¾ offered on Wednesday morning.

The upsized $500 million issue (from $400 million) priced at par, at the tight end of talk, and were heard to be playing to $3 billion of orders just before the close of books on Tuesday afternoon.

The freshly minted IPL Plastics Inc. 6% senior secured notes due September 2028 (B3/B) were 102 bid on Wednesday.

The upsized $485 million issue (from $450 million) priced at par, at the tight end of talk, and were also playing to high demand, according to a bond trader, who said that there were $4.2 billion of orders in the book around noon ET Tuesday.

With the new issue market in the throes of a traditional late summer lull, crossover investors are expected to have a look at the Hyatt Hotels Corp. $750 million offering of two-year floating-rate senior notes (BBB-), which is set to price on the investment-grade desk.

Initial talk has the two-year non-call one-year floater coming at a 300 basis points spread to Libor. Given that spread, if the deal were to come at par, the implied yield would be around 3.23%, a bond trader said, adding that such a level would be sufficient for crossover accounts, who also became active in recent low-rated investment-grade deals from Expedia Group Inc. and Marriott International Inc.

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