Morning Commentary: Junk unchanged amid weak data; Tuesday issues tread water

By Paul A. Harris

Portland, Ore., April 5 – The high-yield bond market opened unchanged on Wednesday, and remained that way at midmorning on the back of weak macroeconomic data suggesting that a pause in rate increases from the central bank might be in order, a bond trader in New York said.

With equities mixed at midmorning the iShares iBoxx $ High Yield Corporate Bd (HYG) share price was 0.09% lower, down seven cents, at $74.86.

A Wednesday ADP National Employment report showing that U.S. private employers hired far fewer workers than expected in March, and an ISM report indicating slower-than-expected growth in the service industries, both augur against another increase to benchmark rates when the Fed convenes in May. possibly creating a more favorable backdrop for investing in risk assets, the trader recounted.

Yet, those Wednesday morning reports sparked little if any enthusiasm among investors, the source remarked.

Issues priced on Tuesday – the biggest day in the dollar-denominated primary market in a year and a half – were slightly weaker or wrapped around issue prices or trading at modest premiums on Wednesday morning, the trader said.

Most tended to be slightly off from earlier highs.

The Cloud Software Group Holdings Inc. 9% senior second-lien notes due September 2029 (Caa2/B-) were 80¾ bid, 81¼ offered, after going out last night at 81¼ bid, 82 offered, according to sources.

The massive $3,837,622,000 issue, which cleared some of the Citrix leveraged buyout bridge loan debt that had been hung up on dealer balance sheets since late 2022, priced at 79 to yield 14.047% on Tuesday.

The new Valaris Ltd./Valaris Finance Co. LLC 8 3/8% senior secured second-lien notes due April 2030 (B2/BB-/BB-) were 99¼ bid, 99¾ offered at midmorning on Wednesday, off from earlier levels of 99 7/8 bid, par ¼ offered, the source said.

The upsized $700 million issue (from $600 million) priced at par.

Tuesday's action also included dollar deals from a couple of offshore issuers.

The Noble Corp. plc/Noble Finance II LLC 8% senior notes due April 2030 (B2/BB-/BB-) were par ¼ bid, par ¾ offered, unchanged on the morning.

The London-based drilling contractor's $600 million issue priced at par, 25 basis points through price talk.

And Germany-based automotive technology components supplier ZF Friedrichshafen AG also came Tuesday with a two-part green deal (Ba1/BB+) in unsecured bullet tranches: 6 7/8% notes due 2028 and 7 1/8% notes due 2030, both of which came at slight discounts.

Both were slightly better on Wednesday morning, trading at par ¼ bid, par ¾ offered, the trader said.

All of Tuesday's deals were heard to have played to robust demand, sources said.

Following Tuesday's conspicuous burst of activity, the new issue market was quiet on Wednesday morning, and the active forward calendar remained empty.

With players staging for the extended Easter holiday weekend ahead, the primary market is not likely to reopen prior to that time, sources say.

Fund flows

The dedicated high-yield bond funds saw a substantial-or-better $803 million of net daily cash inflows on Tuesday, according to a market source.

Actively managed high-yield funds had $490 million of inflows on the day.

High-yield ETFs saw $313 million of inflows on Tuesday, the source said.

The combined funds are tracking $3.5 billion of net inflows on the week that is set to conclude with Wednesday's close, representing their largest amount of weekly inflows since that week to Nov. 2, 2022, according to the market source.

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