Morning Commentary: Junk weakens; some stability takes hold; negative cash flows seen on Friday

By Paul A. Harris

Portland, Ore., Dec. 14 – High-yield bonds opened weaker on Monday.

However, relative to Friday’s rout, there was a modicum of stability on Monday morning, sources said.

“The market is weaker again, but it has not dropped as fast as it did on Friday when it went straight down right out of the gates,” said a trader based on the East Coast of the United States.

Just about all names were lower, the trader said, adding that no one can escape the selling pressure that has lately taken hold in the junk bond market, although bonds with better credit ratings are staying slightly ahead of the game.

Elsewhere a debt capital markets banker was also seeing some stability on Monday morning, following Friday's session when “real money accounts and ETFs were selling.”

High yield ETFs were also weaker, heading into mid-morning on Monday.

The iShares iBoxx $ High Yield Corporate Bd (HYG) was down 69 cents at $78.83 per share. The SPDR Barclays High Yield Bond ETF (JNK), at $33.47 per share, was down 22 cents.

Outflows

The cash flows of the dedicated high-yield bond funds were negative on Friday.

High-yield ETFs saw $695 million of outflows on the day.

Actively managed funds sustained $105 million of outflows on Friday.

Bank loan funds, meanwhile, saw $375 million of outflows on the day.

Quiet in primary

There was no new issue news on Monday morning.

Numerous buyside and sellside sources believe that 2015 primary market activity has come to a close, and the new issue market will not reopen until the new year.

Amid such forecasts, however, Kraton Polymers, LLC remains in the market with a $425 million offering of eight-year senior notes (B3/CCC+) via Credit Suisse, Nomura and Deutsche Bank.

And in the absence of any hard news to the contrary, NGL Energy Partners LP remains in the market with a $300 million offering of five-year senior notes (B2/BB-/BB-), although the deal went silent early in December.

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