Morning Commentary: Junk searches for bid as markets flail and stocks trip breakers

By Paul A. Harris

Portland, Ore., March 12 – With stocks in the United States sustaining falls precipitous enough to trip a 15-minute trading halt, or “circuit breaker,” on the New York Stock Exchange Thursday morning, sellers had full command of trading in the high-yield bond market, sources said.

Junk bond prices on the screens were 3 points to 5 points lower than Wednesday, a trader said, but added that real prices were probably 4 points to 6 points lower, as people search for firm bids.

“Ugly” was the word a London-based syndicate banker used to describe the market session there.

“All anybody seems to want is someone to say something that would give the least impression that somebody has a grip on this,” the banker said, referring to the coronavirus pandemic and its impact on the global economy and the financial markets.

Surveying the damage, the banker pointed to the Altice (Ypso Finance BIS SA) 4% senior notes due February 2028.

Those bonds, which priced at par on Jan. 23, were 80 bid on Thursday, the official said, but warned that fixing prices on any high-yield bond in the present circumstances is extremely difficult given the volatility.

As in the United States, the European new issue market is closed due to the turbulence, the syndicate source said.

However, whereas three dollar-denominated issuers priced deals in early March, in order to trace the most recent euro-denominated deal to clear the market it is necessary to turn back the calendar to Feb. 20, when Catalent, Inc. priced an upsized €825 million issue of Catalent Pharma Solutions, Inc. 2 3/8% senior notes due 2028 (B3/B+) at par.

There was, however, one ray of sunlight that shot through the conversation with this London-based banker, who has close contacts in China.

There, the banker said, the coronavirus situation is getting a lot better.

Wednesday outflows

The dedicated high-yield bond funds sustained $163 million of net outflows on Wednesday, according to a market source.

High yield ETFs saw $8 million of outflows on the day.

Actively managed high-yield funds saw $155 million of outflows on Wednesday, the source said.

As the market awaits a Thursday report on the weekly cash flows of the various asset classes, from Lipper US Fund Flows, the combined high-yield accounts are tracking $5 billion of outflows for the week that concluded with Wednesday’s close, the market source added.

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