Morning Commentary: Junk secondary higher ahead of Fed decision; Intertape notes on deck

By Abigail W. Adams

Portland, Me., June 15 – It was a strong start to the day in the high-yield secondary space with all eyes on the Federal Reserve’s afternoon announcement, which will determine the direction of the market, a source said.

The market has priced in its expectations for a 75 basis point rate increase to be announced this afternoon, which sparked massive selling over the past three sessions.

However, the cash bond market was bid up more than 1 point early in Wednesday’s session.

While the strong rally was a little “head scratching,” short-covering and ETFs were contributing to the early morning strength.

The iShares iBoxx $ High Yield Corporate Bond ETF (HYG) saw a large inflow on Tuesday but ETF arbitrage players were unable to find bonds due to low liquidity, which caused a spike in prices, a source said.

Carvana Co.’s 10¼% senior notes due 2030 (Caa2/CCC) jumped to 85 in early trading after spending much of Tuesday’s session on an 81-handle.

HYG was up to $74.69, an increase of 1.51%, shortly before 11 a.m. ET.

While the secondary space was strong early in the session, the primary market remained quiet with Iris Holdings Inc.’s $400 million offering of 6.5-year senior notes (Caa2/CCC+) backing the buyout of Intertape Polymer Group Inc. the sole deal in the market.

Most recent price talk has the deal coming with a 10% coupon at an issue price of 83 to 85 to yield in the context of 13½% to 14%, sources said.

Books are expected to close at 11 a.m. ET with pricing to take place thereafter.

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