The average bid of LCD’s flow-name composite advanced 18 bps over the past week, to 98.33% of par, from 98.15 on Aug. 26. (Due to light secondary activity, LCD is reading the flow-name composite once a week, on Wednesdays. We will resume the regular Tuesday/Thursday schedule after Labor Day.)
Among the 15 names in the sample, 10 advanced, one declined, and four were unchanged from the previous reading. Posting the largest moves in either direction were the Charter Communications F term loan due 2021, the PetSmart term loan due 2022, and the Restaurant Brands (Burger King) term loan due 2021, each of which was bid a half-point higher in the previous reading. Note that today’s positive reading snaps a streak of six consecutive declines in the average bid price.
The market has continued to recoup some of the losses posted early last week on concerns about China. Activity has been thin during what is typically a quiet time of the year, but as noted previously, loans have outperformed equities and high-yield last month, and so far in September have been stable despite this week’s swings in stocks.
Looking ahead, players say that although the loan markets and the capital markets overall clawed back lost ground in late August, the watch words for September are “price discovery.” For one thing, all the issues that caused the markets to correct in August – full valuations in the equity markets, China’s currency devaluation and economic slowdown, woes in the emerging markets, tepid economic growth in the U.S., weak oil prices, uncertainty over whether the Fed will begin raising the funds rate – remain in effect. Therefore, arrangers say August’s secondary market decline has left the new-issue market in price discovery mode. Players say it’s tough to gauge where clearing yields will settle once the new-issue market reopens post-Labor Day, which, after all, will be after a new-issue hiatus of several weeks.
With the average loan bid rising 18 bps, the average spread to maturity dropped four bps, to L+427.
By ratings, here’s how bids and the discounted spreads stand:
- 99.5/L+369 to a four-year call for the nine flow names rated B+ or higher by S&P or Moody’s; STM in this category is L+367.
- 96.58/L+529 for the six loans rated B or lower by one of the agencies; STM in this category is L+501.
Loans vs. bonds
The average bid of LCD’s flow-name high-yield bonds added 82 bps, to 97.60% of par, yielding 7.40%, from 96.78 on Aug 26. The gap between the bond yield and discounted loan yield to maturity stands at 315 bps. – Staff reports
- September: The average flow-name loan increased 18 bps from the final August reading of 98.15.
- Year to date: The average flow-name loan advanced 141 bps from the final 2014 reading of 96.92.
- Bids gain: The average bid of the 15 flow names rose 18 bps, to 98.33% of par.
- Bid/ask spreads tighten: The average bid/ask spread shrank four basis points, to 34 bps.
- Spreads drop: The average spread to maturity – based on axe levels and stated amortization schedules – edged down four basis points, to L+427.