Morning Commentary: Junk bonds mixed as risk-free rates drop; Tenneco sets investor call

By Paul A. Harris

Portland, Ore., Aug. 4 – Hopes that a mixed employment picture circulated Friday morning by the Labor Department might forestall future interest rate hikes by the Fed pushed stock prices higher.

However, junk bonds were mixed in the early going on Friday as earnings numbers from speculative-grade issuers have tended to be underwhelming at best, according to a bond trader in New York.

With the S&P 500 stock index up 0.49% at mid-morning, and the yield of the 10-year Treasury as much as 10 basis points lower versus Thursday, the iShares iBoxx $ High Yield Corporate Bd (HYG) share price was a hefty 0.71% higher, up 53 cents, at $74.74.

Headline news that Icahn Enterprises would cut its dividend by 50%, as it reported a $269 million net loss for the quarter that ended June 30, caused the company’s share price to fall 30%-plus, and dinged its bonds, the trader said.

The Icahn Enterprises LP/Icahn Enterprises Finance Corp. 5¼% senior notes due May 2027 were down a point on the morning, changing hands at 86½, the trader said.

Among recent issues, the Rain Carbon Inc. 12¼% second-lien senior secured notes due September 2029 (B3/B) continued to command a handsome premium in the secondary market on Friday morning, sources said.

The New York trader had them 102 bid, 102¼ offered and remarked that up until the final hours the order book for the $450 million deal had been a “clubby” one, populated by investors – including hedge funds – drawn to cuspy, high-coupon plays.

“Then people started piling in,” the trader said.

Slightly later a portfolio manager who played the deal had the new Rain Carbon 12¼% notes 102¼ bid, 102 5/8 offered.

The issue priced Thursday at par.

In primary market news, Tenneco Inc. scheduled an investor conference call at 10:30 a.m. ET on Monday, during which it plans to stage a return to the market with debt related to the buyout of the company by Apollo that became hung-up in the market late last year.

The offering will be comprised of senior secured notes and a new term loan B.

BofA Securities LLC will lead the bonds.

Fund Flows

The dedicated high-yield bond funds saw muted net daily cash inflows of $71 million on Thursday, according to a market source.

That amount, in its entirety, was taken in by the high-yield ETFs, the source said, adding that the flows of the actively managed high-yield funds were absolutely flat on the day.

News of Thursday’s daily cash flows follows a Thursday afternoon report that the combined funds sustained $1.013 billion of net outflows in the week to the Wednesday, Aug. 2 close, according to fund-tracker Refinitiv Lipper.

It was the fifth negative weekly cash flow that the funds reported in the past six weeks, according to the market source, who added that total net outflows during that six-week interval come to a relatively modest $566 million.

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