Morning Commentary: American Airlines junk improves; new Carnival bonds inch higher

By Paul A. Harris

Portland, Ore., Oct. 20 – The high-yield bond market opened unchanged on Thursday and was firming slightly at mid-morning, according to a sellside source in New York.

The market's initial reaction to news that U.K. prime minister Liz Truss resigned her office appeared to be generally positive, the source remarked.

With the Dow Jones industrial average up 1% at mid-morning, the iShares iBoxx $ High Yield Corporate Bd (HYG) share price was up 0.44%, or 32 cents, at $75.52.

The speculative grade debt of American Airlines notched higher after the Fort Worth-based air carrier reported its highest-ever quarterly revenue, up 13% year over year, as CEO Robert Isom told stockholders that air travel demand is strong.

The American Airlines, Inc./AAdvantage Loyalty IP Ltd. 5½% senior secured notes due April 2026 were up ¾ of a point on the heels of the report, changing hands Thursday morning at 95½, the sellside source said.

Among recent issues the Carnival Corp. 10 3/8% senior priority notes due May 2028 (B2/B+) were up 1/8 of a point on the morning, trading at 99¼.

The upsized $2.03 billion issue (from $1.25 billion) priced Tuesday at 98.465 to yield 10¾% in a heavily oversubscribed transaction that saw price talk tighten by about 75 basis points between the time the deal was announced, and the time it priced.

The offering played to an audience comprised of existing holders, representing as much as $750 million of reverse inquiry, as well as big buy-and-hold outfits, and cash-laden accounts seeking to put money to work in a new issue market that appears to be limping into year-end, according to a portfolio manager who played the deal.

Elsewhere the Odeon Finco plc (AMC Entertainment Holdings, Inc.) 12¾% senior secured notes due November 2027 (B3/B) were down more than ¼ of a point on Thursday morning, changing hands at 90.79, the sellsider said.

The $400 million issue priced last Friday at 92 to yield 15.066%.

Fund flows

The dedicated high-yield bond funds saw a modest $148 million of net daily cash inflows on Wednesday, according to a market source.

High-yield ETFs saw $88 million of inflows on the day.

Actively managed high-yield funds saw $60 million of inflows on Wednesday, the source said.

With a weekly report on the weekly cash flows of the various asset classes expected Thursday afternoon from fund-tracker Refinitiv Lipper, the combined high-yield bond funds are tracking $35 million of net outflows for the week to Wednesday’s close, according to the market source.

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