CAM High Yield Weekly Insights

Fund Flows & Issuance:  According to a Wells Fargo report, flows week to date were $0.9 billion.  New issuance for the week was $13.2 billion and year to date HY is at $27.4 billion.

(Bloomberg)  High Yield Market Highlights

• S. junk bonds posted a third straight day of losses as issuance neared $32 billion, the most for a January in more than a decade.
• Borrowers are rushing to take advantage of low rates before the window closes
• Markets may see support today as stock futures climb on economic data and investors set aside concerns about a deadly virus from China hampering growth
• Yields rose 8bps to 5.17%, a three week high, as stocks fluctuated and oil dropped to an eight-week low
• Spreads widened 8bps to +340, a six week high
• Energy yields jumped 30bps to 8.56%, the biggest increase in more than five months
• Energy index posted a loss of 0.675%, the biggest loss since October,
• CAA yields were back at 10%, returns were negative for a third day
• Retail funds have reported three straight weeks of inflow, the longest streak in almost three months

(Wall Street Journal)  Glut Pushes Natural Gas Prices Below $2 

• The price of natural gas typically rises this time of year as temperatures plunge and homeowners dial up their thermostats. Instead, the price of the heating and electricity-generating fuel has dropped to multiyear lows.
• On Tuesday, natural-gas futures fell below $2 per million British thermal units to their lowest level in nearly four years, highlighting how a persistent glut has buffeted energy investors and producers. This winter’s mild weather has joined an oversupply of the commodity to push natural-gas prices down to levels not seen since March 2016. On Tuesday, futures fell 5.4% to $1.895 per MMBtu.
• The shale boom, spurred by horizontal drilling and hydraulic fracturing techniques, has transformed the U.S. energy industry and flooded the market with oil and natural gas in recent years. The decline in prices has hit shares of energy companies, raising calls for them to curtail production. But few analysts see signs of the glut abating soon: The U.S. Energy Information Administration predicts dry natural-gas production in the U.S. will rise by 2.9% in 2020.
• The fall in prices has come faster than analysts and traders had predicted. Colder winter temperatures typically drive up prices as homeowners demand more fuel to heat their houses. However, warmer-than-expected weather this season has helped drive prices down, adding to investors’ grim outlook.
• On Tuesday, oil-field services company Halliburton Co. said it swung to a loss in 2019 on a decline in revenue that it blamed on diminished drilling onshore in North America, which in turn was due to low commodity prices.
• “Gas prices in the U.S. are below break-even levels,” Chief Executive Jeffrey Miller told analysts and investors. Mr. Miller said that he expects a 10% reduction in spending among the oil-field services company’s customers in North America, with the bulk of those cuts coming in gas-producing regions. Halliburton has been idling equipment to match customers’ reduced needs, he said.

(Bloomberg)  Junk Bond Volume Nears $30 Billion in Refi Frenzy

• The U.S. junk-bond market is on track for its busiest January in at least a decade with volume poised to exceed $30 billion as companies rush to refinance at cheap rates.
• At least seven issuers are looking to sell debt on Thursday after an already hectic pace. Those deals will potentially take new issue volume to $30.8 billion, the most for any January since 2006, according to data compiled by Bloomberg
• Companies are mostly selling debt to refinance. Some of those issuers are replacing loans with bonds
• Garda World Security, owned by private-equity firm BC Partners, is marketing $400 million 7 year senior secured notes to take out a term loan
• It’s at least the third company to do so this month amid more favorable pricing — in some cases — for bonds
• Another BC Partners portfolio company, Presidio, priced secured bonds at a cheaper rate than loans last week
• Grocer Albertsons also sold $2.35 billion of bonds on Wednesday to refinance loans
• The primary market appears open to the deals in the lowest CAA junk rating tier. Community Health and Altice are in market with bonds that have at least one rating in that range
• Junk-bond spreads widened to a two-week high on Wednesday, and may weaken more as stocks fall and oil prices fall to an almost eight-week low of $55.51 a barrel