Morning Commentary: Junk firms on positive banking sector news; Tutor Perini plummets

By Paul A. Harris

Portland, Ore., March 16 – After opening unchanged to slightly lower on Wednesday, the high-yield bond market got some traction heading into the mid-morning on some positive news from the pummeled banking sector, according to a bond trader in New York.

Banks including JPMorgan and Morgan Stanley are reported to be in talks to aid beleaguered First Republic Bank, the source said.

Prior to the news the San Francisco-based lender’s shares had been plummeting as it was understood to be exploring the possibility of selling itself, the trader recounted.

On Wednesday, First Republic's credit ratings were cut to junk: S&P Global Ratings lowered the bank's long-term issuer rating to BB+ from A-, while Fitch Ratings downgraded First Republic Bank's long-term issuer default rating to BB from A-.

On the heels of the latest news about First Republic Bank, with the S&P 500 stock index up 0.75%, the Shares iBoxx $ High Yield Corporate Bd (HYG) share price was up 0.16%, or 11 cents, at $73.44.

Bonds of California-based contractor Tutor Perini Corp. sustained a sharp drop on news that the company reported a negative 5.48% return on equity for the fourth quarter and a 12.6% quarter-over-quarter decline in revenue, the trader said.

The Tutor Perini 6 7/8% senior notes due May 2025 changed hands at 75¾ Thursday morning, after closing in the mid-80s on Wednesday, the source added.

The primary market remained dormant on Thursday morning, a fortnight after the most recent dollar-denominated deal was priced.

The active forward calendar remained empty.

Fund flows

High-yield ETFs sustained large daily cash outflows of $603 million on Wednesday, according to a market source.

Actively managed high-yield funds were positive on the day, posting $185 million of inflows on Wednesday, the source said.

As the market awaits a report on the weekly cash flows of the various asset classes, expected later Thursday from fund-tracker Refinitv Lipper, the combined high-yield bond funds are tracking $1.5 billion of net outflows for the week that concluded with Wednesday's close, according to the market source.

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