Morning Commentary: High yield unchanged on strong jobs report; junk funds see outflows

By Paul A. Harris

Portland, Ore., July 8 – With stocks gyrating in the wake of a strong monthly report on non-farm payroll employment from the U.S. Department of Labor on Friday morning, the high-yield index was unchanged, according to market sources.

According to the Friday report, payrolls increased by 372,000 in June, far exceeding economists' expectations of 268,000.

Average hourly earnings were up 0.3% month over month, in line with estimates, while they were up 5.1%, year over year, slightly exceeding the 5% forecast.

The unemployment rate remained low at 3.6%, unchanged from the previous month.

There was little if anything in the report suggesting that the Federal Reserve Bank's interest rate-setting Federal Open Market Committee might back away from coming increases to the benchmark Fed Funds rate that it has been telegraphing, sources said.

With the S&P 500 stock index up 0.29% at mid-morning, the iShares iBoxx $ High Yield Corporate Bd (HYG) share price was up 3 cents, or 0.03%, at $74.86.

The most recent dollar-denominated deal to clear the market (and the post-Independence Day week's sole dollar-denominated issue) continued to trade at a nice premium to its new issue price.

The Garden SpinCo Corp. (Neogen Corp.) 8 5/8% senior notes due July 2030 (B2/BB) were 102 bid, 102½ offered, changing hands in a small Friday morning trade, according to a bond trader on the East Coast of the United States.

The $350 million issue priced Wednesday at par, riding into market on $400 million of reverse inquiry and playing to an order book that was 2.5-times oversubscribed, sources said.

Market liquidity, in general, was poor on Friday morning, the trader said.

There was no news in the dollar-denominated new issue market on Friday morning, sources said.

As the abbreviated post-holiday week wound down the active new issue calendar remained empty.

Thursday outflows

The dedicated high-yield bond funds sustained $475 million of net daily outflows on Thursday, according to a market source.

Actively managed high-yield funds saw $392 million of outflows on the day.

High-yield ETFs sustained $83 million of outflows on Thursday, the source said.

News of Thursday's daily flows trails a Thursday report that the combined funds saw $889 million of net inflows for the week to the Wednesday, July 6 close, according to Refinitiv Lipper.

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