Morning Commentary: Junk market opens pre-Easter week lower; ETFs see Friday outflows

By Paul A. Harris

Portland, Ore., April 11 – The high-yield bond market opened Holy Week down 1/8 point to ¼ point, according to a trader in New York.

With the S&P 500 index down 1.2% at mid-morning and the 10-year Treasury yielding above 2¾%, the iShares iBoxx $ High Yield Corporate Bd (HYG) share price was down 0.44%, or 35 cents, at $79.89.

The Sealed Air Corp. 5% senior notes due April 2029 (Ba2/BB+) were 99½ bid, 99 5/8 offered, down about ¼ point in odd-lot trading, the trader said.

The $425 million issue priced at par last Tuesday.

The CDI Escrow Issuer Inc. (Churchill Downs Inc.) 5¾% senior notes due April 2030 (B1/B) – the biggest single tranche to clear the market in the past three weeks – were 99 bid, 99½ offered.

The $1.2 billion issue priced at par on March 30.

The most recent issue, the Earthstone Energy Holdings, LLC 8% senior notes due April 2027 (B3/B+/B+), maintained a premium to the issue price on Monday morning at par 1/8 bid, par 5/8 offered.

It was the debut junk issue from Earthstone, which priced the oversubscribed $550 million issue at par last Thursday, with investors taking to its short duration and hefty yield that came in the middle of initial guidance and at the wide end of official talk.

The new issue market remained quiet on Monday morning with 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.

Although there were no new deal announcements on Monday, the primary market might see some more activity on Tuesday and Wednesday, the trader said.

Thursday, ahead of the extended Easter holiday weekend, is doubtful, the source added.

Fund flows

High-yield ETFs sustained $789 million of daily cash outflows on Friday, according to market sources.

It was the second consecutive big daily outflow from the ETFs, which saw $689 million of outflows on Thursday.

Those two daily outflows come on the heels of a record $775 million of inflows, which the junk ETFs saw in the week to last Wednesday’s close, a market source said.

Meanwhile, the actively managed high-yield funds saw $14 million of daily inflows on Friday.

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