Morning Commentary: Junk catches bid on Friday morning after trailing ‘week from hell’

By Paul A. Harris

Portland, Ore., March 13 – Following a week which saw the global capital markets rocked by extreme turbulence, and a Thursday session which saw the Dow drop 10%, garnering comparisons to the “Black Monday” crash of October 1987, the needles were nearly all in the green on Friday morning, sources said.

With the Dow up 500 points, high yield was 1½ points to 2 points higher at mid-morning, according to a bond trader in New York.

“Away from energy, things haven’t been all that bad,” the trader asserted.

“There have been bids all week...just lower.”

Friday morning saw definite improvement in higher quality paper from sectors with some insulation from the devastation that the Covid-19 pandemic is now heaping upon the global economy, the trader said.

The HCA Inc. 3½% senior notes due September 2030 (Ba2/BB-/BB) were 97 bid on Friday morning, up 3 points. They had fallen to as low as 94 after beginning the week as high as par ½ bid, the trader recounted.

Massive moves by the Federal Reserve Bank to address liquidity concerns in the financial markets, totaling well over $1 trillion injected into the repo markets, played a hand in Friday's post-panic rally, sources said.

Away from quality paper from safer sectors, there was little movement on Friday morning, apart from possible short covering.

Bonds of the casinos and travel-related companies remained extremely week, as traders endeavored to discover prices for that paper.

There was finally a modicum of good news in the energy sector. The barrel price of West Texas Intermediate crude oil for April 2020 delivery was up 0.79%, or 25 cents, at $31.75 on Friday morning.

However, any impact the modest improvement might have made on the deeply distress bonds from the oil and gas sector was difficult to detect, the trader said.

The high-yield new issue market remains closed, awaiting evidence that the capital markets are beginning to stabilize, sources say.

Modest Thursday outflows

The dedicated high-yield bond funds sustained a relatively modest $89 million of net daily outflows on Thursday, according to a market source.

High-yield ETFs saw $84 million of outflows on the day.

Actively managed high-yield funds were essentially flat, with $5 million of Thursday outflows, the source said.

News of Thursday’s daily flows follows a Thursday afternoon report that the combined funds sustained $4.94 billion of outflows in the week to Wednesday’s close, according to Lipper US Fund Flows.

It capped a three-week run of outflows totaling a record $14.3 billion, according to a Prospect News analysis of the data.

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