Morning Commentary: Focus shifts to secondary market as high-yield calendar vanishes

By Paul A. Harris

Portland, Ore., Aug. 24 – Junk opened unchanged with a positive tone on Tuesday as pre-Labor Day trading volumes thin and offers become scarce, sources said.

High-yield bond trading volumes were down 16% from Friday, a trader said.

The iShares iBoxx $ High Yield Corporate Bd (HYG) share price was basically unchanged at $87.60, at mid-morning, up 4 cents or 0.05%.

With the new issue calendar appearing to have dried up, buyers are stepping into the secondary market, the trader said.

As a result, some recent issues that had been underperforming saw improvement on Tuesday morning.

One such bond, the Sylvamo Corp. 7% senior note due September 2029 (B1/BB), was 101½ bid, 102 offered at mid-morning, the trader said, recounting that it had been hanging around in the par ¼ bid context.

The bond got off to an inauspicious start late last Friday.

“It's never a good sign when a deal prices late on Friday,” the trader remarked.

A $450 million issue, Sylvamo came downsized from $500 million, at the wide end of talk and well over 100 basis points beyond initial guidance, replete with covenant changes.

However, in the absence of a calendar, investors have taken an interest in it, the source said.

Another such name is fallen angel Howmet Aerospace Inc., the trader said.

The Howmet 3% senior note due September 2021 (Ba2/BB+/BBB-), a bullet, was par ½ bid, 101 offered on Tuesday morning.

It had been trading around par, where the $700 million issue priced last Wednesday.

Away from recent issues, continuing dire news regarding the coronavirus pandemic does not appear to be pushing the high-yield market one way or another, the trader said.

Nor does recent climate news seem to be registering much impact.

News of continuing drought and vanishing water supplies in the Western United States does not seem to be impacting the bonds of companies with a stake in water supply and infrastructure.

That said, Mueller Water Products, Inc.’s 4% senior notes due June 2029 (Ba1/BB) were 103 3/8 bid on Tuesday, up from 102 bid, 103 offered, on thin volume.

The Atlanta-based water infrastructure products manufacturer’s $450 million issue priced at par in May.

Meantime the primary market failed to generate news on Tuesday morning and may have run its course for the summer of 2021, sources say.

“Never say never,” the trader advised on Tuesday morning, adding that one or two dealers might find present market circumstances conducive to a deal prone to struggle for attention during a $5 billion-plus jam-up day, when the new issue market is running at full steam.

Monday inflows

The dedicated high-yield bond funds saw $324 million of net daily inflows on Monday, according to a market source.

High-yield ETFs saw $283 million of inflows on the day.

Actively managed high-yield funds saw $41 million of inflows on Monday, the source said.

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