Morning Commentary: Job market resilience tugs junk lower; split-rated Rexnord deal eyed

By Paul A. Harris

Portland, Ore., Jan. 5 – All eyes once again shifted to the itchy trigger finger of the Fed, as an unexpectedly robust set of jobs data exerted downward pressure on capital markets in the United States on Thursday, according to market sources.

After opening unchanged, the high-yield bond market dropped by as much as ¼ point on the heels of a Thursday morning report that November job openings and labor turnover depict resilience, a trader said, noting that the report will reinforce investors' apprehensions concerning further interest rate hikes from the Fed in order to tame the inflationary forces that underly those healthy jobs numbers.

With the Dow Jones industrial average down 1.1% at mid-morning, the iShares iBoxx $ High Yield Corporate Bd (HYG) share price was down 0.39%, or 29 cents, at $74.33.

Junk bonds issued in the first and only high-yield deal to price thus far in 2023, the Ford Motor Credit Co. LLC senior notes (Ba2/BB+/BB+), were off morning highs at mid-morning, in line with the market, a high-yield portfolio manager said.

Following the jobs report, the Ford Motor Credit 6.95% notes due March 2026 and 7.35% notes due March 2030 were both par bid, par ¼ offered.

The 6.95% notes priced on Tuesday at 99.873 to yield 7% in a $1.3 billion tranche. The 7.35% notes priced at 99.877 to yield 7 3/8% in a $1.15 billion tranche.

There were murmurs in the primary market.

Regal Rexnord Corp. (Baa3/BB+/BBB-) is staging for the sale of split-rated Rule 144A and Regulation S senior notes to help replace the $5.5 billion 364-day senior bridge loan put in place last November as part of the financing for its acquisition of Altra Industrial Motion Corp.

A non-deal roadshow is expected to get underway shortly, according to the portfolio manager, who added that J.P. Morgan Securities LLC will be the left bookrunner.

Regal Rexnord is also expected to bring an offering of investment-grade-rated senior secured notes, the manager said.

The new issue market could see a somewhat more vigorous volume of activity, according to the portfolio manager, who remarked that since the beginning of the year spreads have tightened and the market's tone has been pretty good.

Fund flows

High-yield ETFs saw a hefty $631 million of daily cash inflows on Wednesday, according to a market source.

Actively managed high-yield funds were negative on the day, sustaining $20 million of outflows on Wednesday, the source said.

As the market awaits a report on the weekly cash flows of the various asset classes, expected later on Thursday from fund-tracker Refinitiv Lipper, the combined funds are tracking $2.2 billion of net outflows for the week to Wednesday’s close, according to the market source.

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