Morning Commentary: Junk flat as market eyes data; funds see daily inflows on Thursday

By Paul A. Harris

Portland, Ore., Sept. 30 – The high-yield bond market opened firmer on the final session of 2022's third quarter but was unchanged at mid-morning as investors eyeballed reports bearing upon inflation and the health of the U.S. economy, according to a sellside source in New York.

With the S&P 500 stock index up 0.71% at mid-morning on Friday, the iShares iBoxx $ High Yield Corporate Bd (HYG) share price was up a solid 0.56%, or 40 cents, at $72.13.

With the rocky month of September coming to a close, investors parsed the Fed's Personal Consumption Expenditure (PCE) report for August, which suggests that inflation is still quite active. Core PCE rose at a rate of 4.9% year over year versus the 4.7% increase economists expected, the sellsider said, remarking that there is nothing startling, or even unexpected, in the report.

Meanwhile the Chicago Purchasing Managers Index (PMI) also known as the Chicago Business Barometer, sustained a sharp drop, coming in well below economists' forecast, and suggesting that the economy is contracting, the source added.

Among cash bonds, the Citrix Systems Inc./Tibco Software Inc. 6½% senior secured notes due March 2029 (B2/B) were unchanged on the morning at 84½ bid, 84¾ offered, the sellsider said.

Those bonds priced at 83.561 in a $4 billion megadeal on Sept. 20, as dealers labored furiously to get the committed buyout debt off their balance sheets, reportedly sustaining a loss of $600 million in the process (the load of hung-up LBO debt intensified on Thursday when the struggling Brightspeed $1.865 billion offering of secured notes was withdrawn due to market conditions).

Away from recent issues, the Carnival Corp. 5¾% senior notes due March 2027 fell 4 points, with a print as low as 70, following the Miami-based cruise operator's earnings report, which came out earlier on Friday, the sellsider said.

While Carnival reported its first positive cash flow since resuming cruise operations, approximately $300 million, analysts had been expecting the company to generate more than twice that amount of free cash, the source remarked.

Carnival's stock (NYSE: CCL) was down 19.05% at mid-morning.

The primary market remained idle on Friday morning, with the active new issue calendar nearly empty heading into the weekend.

Villa Dutch Bidco is in the market with a €425 million offering of seven-year senior secured notes (B2/B) backing Bain Capital's acquisition of a majority stake in Belgium-based House of HR.

The only remaining dollar-denominated deal left on the active calendar in the wake of the Brightspeed postponement on Thursday is a Chapter 11 exit financing from Chile-based Latam Airlines Group SA, which is attempting to place $1.5 billion of senior secured notes in two tranches.

U.S. high-yield accounts that were active in the Latam Airlines debtor-in-possession loan comprise a captive audience for the deal, market sources say.

Both tranches are being discussed in a yield range of 13% to 14%, according to a market source.

Inflows

The dedicated high-yield bond funds saw $198 million of net daily inflows of cash on Thursday, according to a market source.

High-yield ETFs saw $132 million of inflows on the day.

Actively managed high-yield funds saw $66 million of inflows on Thursday, the source said.

News of Thursday's daily cash flows followed a Thursday report that the combined funds sustained $3 billion of net outflows in the week that concluded with the Wednesday, Sept. 28 close, according to fund tracker Refinitiv Lipper.

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