Morning Commentary: Junk market slips despite strong jobs numbers; funds see outflows

By Paul A. Harris

Portland, Ore., March 5 – High-yield bonds slipped alongside equities following a much stronger-than-expected U.S. nonfarm payrolls report for February, according to a bond trader.

The newly printed Cinemark USA, Inc. 5 7/8% senior notes due March 2026 (Caa1/B/B) were par 3/8 bid, par 7/8 offered at mid-morning, down from 101¼ offered earlier in the session, the trader said.

The $405 million deal came in a Thursday drive-by blowout, pricing through price talk, deep inside of initial guidance, and playing to order books that were 5½-times the size of the offer, sources said.

The new Macy's Retail Holdings LLC 5 7/8% senior notes due April 2029 (B1/B) were down ¼ point to ½ point at 101¼ bid, the trader said.

The $500 million issue came at par on Tuesday, also pricing through price talk.

The broad high-yield market was off around ¼ point to ½ point following Friday's jobs report, according to the trader.

However higher credit quality junk – which is typically priced with lower yields and narrower spreads – was off as much as 1 point to 2 points, and in some cases more, due to rising Treasury rates, as the strong jobs report sent government bond prices tumbling.

As to lower quality junk and stocks, the strong jobs report will create hurdles for the government, as it attempts to put in place further stimulus to counter the negative effects of the coronavirus pandemic, the trader surmised.

In the new issue market, following Vericast Corp.'s withdrawal of its $1.78 billion two-part deal, just one offer remained on deck as Friday business, sources said.

Israel-based Playtika Holding Corp. is selling $600 million of eight-year senior notes (B2/B) talked to yield in the 4¼% area.

The deal is oversubscribed and playing to a mix of emerging markets and high-yield accounts, sources say.

Big Thursday outflows

The dedicated high-yield bond funds sustained $1.2 billion of net outflows on Thursday, the most recent session for which data was available at press time, according to a market source.

High-yield ETFs sustained huge outflows of $1.06 billion on the day.

Actively managed high-yield funds saw $140 million of outflows on Thursday, the source said.

News of Thursday's daily outflows trails a Thursday report that the combined funds saw $601 million of net inflows for the week to the Wednesday, March 3 close, according to the Refinitiv Lipper Fund Flow Report Newsline.

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