Morning Commentary: Ziply, US Steel rocket into secondary; funds see massive Thursday inflows

By Paul A. Harris

Portland, Ore., May 22 – Although stock indexes in the United States opened weaker on Friday high-yield bonds were 1/8 point to ¼ point better, according to a trader in New York.

With the Dow Jones industrial average down half a percent at midmorning the iShares iBoxx $ High Yield Corporate Bd (HYG) was flat, off three cents, or 0.04%, at $81 per share.

Recent issues tend to be trading well, and sometimes sensationally, the trader said.

The United States Steel Corp. 12% secured notes due June 2025 (B2/B+), which priced Thursday at 94.665, in an upsized $1 billion issue (from $700 million) were as high as 99¼ bid, early Friday.

At midmorning they had eased to 98¼ bid, 98¾ offered, another trader said.

Further down the credit spectrum secondary market performance appeared even more stratospheric.

The Ziply Fiber (Northwest Fiber, LLC) 10¾% senior notes due June 2028 (Caa1/CCC), which priced at 98 on Thursday, were seen as high as 105 bid on Friday!

A $250 million amount of that paper came, so it was by no means a large issue, a trader pointed out.

Crimping supply of the Ziply paper even more, a $225 million amount of the notes was placed via Rule 144A and Regulation S, with the remaining $25 million placed privately.

At the opposite end of the speculative-grade credit spectrum, the Newell Brands Inc. 4 7/8% five-year notes (Ba1/BB+/BB) were trading Friday at a more modest premium to new issue: par ½ bid.

The $500 million issue priced Wednesday at 99.5, after investors watched the screws tighten on the deal which was initially whispered in the 5½% area, before ultimately pricing to yield 4.989%.

At one point the Newell Brands order book was heard to be as much as 10-times oversubscribed, a bond trader told Prospect News.

Trailing a four-day period in which the high-yield primary market had $9.7 billion of junk-rated, dollar-denominated issuance, the new issue bourse went quiet ahead of Friday's early close which will give way to the extended Memorial Day holiday weekend in the United States.

Memorial Day typically signals the onset of summer in the junk bond market, whereupon a quieter pace of issuance sometimes takes hold.

With prices soaring in the secondary, the post-Memorial Day 2020 period might not be quite as quiet as summers in the junk bond market of yore tended to be, a trader said on Friday morning.

Add to the mix the fact that the asset class has lately been subjected to an epochal torrent of inflowing cash, the source added.

Massive Thursday inflows

The dedicated high-yield bond funds had a massive $2.23 billion of net daily inflows on Thursday, according to a market source.

High-yield ETFs saw $1.13 billion of inflows on the day.

Actively managed high-yield funds saw $1.1 billion of inflows on Thursday, the source said.

News of Thursday's daily flows follows a Thursday report that the combined high-yield funds had $1.637 billion of net inflows for the week to the Wednesday, May 20 close, according to Lipper US Fund Flows.

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