NEW YORK: The high-yield market took a beating on Thursday with bonds down several points as yields spiked after the Federal Reserve signaled it is gearing up to end its asset purchase program.
The CDX HY20 dropped another point and a half today to 101.28.
Recently priced tight BB paper has been particularly hard hit. Ball Corp's 4% notes due 2023, which are considered the poster boy for the market peak, were quoted at 91.75-92.75, down another 3.5 points from yesterday's levels.
"It's pretty ugly across the board," said John Fekete, portfolio manager at Crescent Capital. "Obviously, anything with long duration and low coupon is suffering, but even names that generally had positive news are down.
"It doesn't matter. Good news, bad news, everything is being taken lower."
SandRidge Energy today announced that it ousted its CEO, which was viewed positively by market participants who expect that a new management team will be more disciplined.
But instead of trading up, the company's notes fell two points on the day as the market sold off. The 7.5% notes due 2023 were quoted down at 94.50 from 96.75 yesterday.
"Right now, the action, at least today, feels like just more desks moving things up and down in response to movements in UST and where they think risk should go rather than a tremendous amount of trading volatility," said one high-yield banker.
Lipper reported a more modest outflow this week ending Wednesday, at USD332.88m. For the previous two weeks, a total of USD7.92bn flowed out of mutual funds and ETFs combined.
As expected, no issuers launched new deals today.
"Issuers would have to price deals 100bp more than a month ago, and that's a scary thought. And even if they did 100bp in the market, there's not a lot of appetite," said one investor.
Valeant Pharmaceutical's transaction will be interesting to watch. The company is expected to price a USD3.225bn two-part issue next week to fund its acquisition of Bausch + Lomb.
Investors said the deal will have to come with a pretty considerable new issue discount which could make the rest of the curve trade very wide.
In the high-yield pipeline, American Equity Investment Life Holding Company is expected to price a deal this week.
The USD250m SEC registered eight-year non-call four senior notes transaction, rated BB+/BB, is expected later today or early Friday via bookrunner JPMorgan and joint leads SunTrust, Citi, Deutsche Bank, Friedman Billings Ramsey and Raymond James.
Tech Finance is also possible with its USD330m seven-year non-call three senior secured offering through JP Morgan, Goldman Sachs and Morgan Stanley.
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