Morning Commentary: High yield shrugs off CPI, stages recovery; outflows continue

By Paul A. Harris

Portland, Ore., April 12 – The high-yield bond market advanced ½ point in active trading on Tuesday morning, a New York-based sellside source said.

On the heels of the Labor Department's Consumer Price Index report, showing inflation running at a slightly higher-than-expect 8½% year-over-year, some high-yield names were nevertheless ½ point to ¾ point better, the source said, noting that a belief appears to be taking hold among some investors that inflation may be reaching a tipping point.

With the Dow Jones industrial average up half a percent at mid-morning, the iShares iBoxx $ High Yield Corporate Bd (HYG) share price was up a healthy 0.94%, or 75 cents, at $80.44.

Among active names, Bally’s Corp.’s 5 5/8% senior notes due September 2029 came for sale as Covid-19 outbreaks in China continue to hammer gaming operations on Macau.

The Bally’s (Premier Entertainment Sub, LLC/Premier Entertainment Finance Corp.) 5 5/8% notes were 82½ bid on Tuesday, down a few points from a week ago, the sellsider said.

Those bonds traded at 85 5/8 on April 5, the source added.

In the volatile energy sector, crude oil prices were rallying hard at mid-morning, up a whopping 7%, while natural gas prices staged a more modest 2½% advance on the morning.

Among recently minted junk bonds from the energy sector, the Hilcorp Energy I, LP and Hilcorp Energy Finance Co. 6% senior notes due April 2030 (Ba3/BB+) were 99¼ bid, par offered on Tuesday morning.

That bond, which came at par in a $500 million tranche on April 5, changed hands on Monday at 99 5/8, according to the sellside source.

The Hess Midstream LP 5½% senior notes due October 2030 (Ba2/BB+/BB+) traded at par ¼ on Tuesday morning, after closing Monday at 99 5/8 bid, par 1/8 offered, the source said.

The $400 million issue priced at par, also on April 5.

The primary market failed to generate any news on Tuesday morning, with some observers wondering aloud whether further new deal announcements might await the conclusion of the extended Easter holiday weekend ahead.

There is just one deal on the active forward calendar.

Oldcastle BuildingEnvelope (Oscar AcquisitionCo LLC) is marketing a $985 million two-part buyout deal, a $400 million tranche of seven-year senior secured notes (B1/B) with initial talk in the mid-to-high 6% area and a $585 million tranche of eight-year senior notes (Caa1/CCC+) with initial talk in the mid-to-high 9% area, on roadshow set to run through Wednesday.

Outflows

The dedicated high-yield bond funds sustained $835 million of daily net outflows on Monday, according to a market source.

High-yield ETFs sustained $785 million of outflows on the day, the fifth consecutive large negative flow for that cohort, the source said.

Actively managed high-yield funds saw $50 million of outflows on Monday.

The combined funds are tracking $3.02 billion of outflows for the week that will conclude with Wednesday's close.

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