Morning Commentary: Junk ETFs see Wednesday inflows; liquidity in high yield thin

By Paul A. Harris

Portland, Ore., Dec. 13 – Junk opened unchanged to slightly better on Thursday as stock prices improved and crude oil prices bounced off early morning lows, a market source said.

Liquidity in the late-year market remains thin, the source added.

High-yield ETFs were better at mid-morning. The iShares iBoxx $ High Yield Corporate Bd (HYG) was up 0.28%, or 23 cents, at $83.54.

High-yield names in the news included Ball Corp., which announced an agreement to sell its metal beverage packaging facilities in China to ORG Technology Co. Ltd., a Chinese metal packaging company, for approximately $225 million.

The company said the proceeds from the sale will support its ongoing global growth initiatives and multi-year share repurchase program.

Ball’s on-the-run 4 7/8% senior notes due March 2026 were unchanged on the news, at 98¾ bid, 99¾ offered, an investor said.

The company stated in a press release that the deal will have an immaterial effect on its 2019 goals of $2 billion of comparable EBITDA and free cash flow in excess of $1 billion.

L Brands, Inc. announced a definitive agreement to transfer ownership and operating control of La Senza, its lingerie business, to an affiliate of Regent LP.

The company will sell 100% of its assets in La Senza in exchange for the buyer’s agreement to assume La Senza’s operating liabilities and to provide L Brands potential future consideration upon the sale or other monetization of La Senza.

L Brands will not realize any proceeds from the sale, according to the bond investor, who spotted the on-the-run L Brands 5¼% senior notes due February 2028 unchanged at 89¼ bid, 90¼ offered.

The new issue market remained shuttered on Thursday and is not expected to reopen until January, when it is expected to see a modest $10 billion to $15 billion of issuance, most of it likely to emerge from a thin pipeline of committed financings.

Ongoing capital markets volatility and a pending rate decision from the Fed have sidelined the new deal market as investors seem generally inclined to put 2018 in the book, sources say.

ETFs inflow $465 million

The daily cash flows of the dedicated high-yield bond funds were mixed on Wednesday, the investor said.

Following three consecutive days of heavy outflows, high-yield ETFs saw a solid $465 million of inflows on Wednesday.

Actively managed high-yield funds remained negative, sustaining outflows of $130 million, the investor said.

That marks the fourth consecutive daily outflow of a magnitude greater than $100 million, according to market sources.

News of Wednesday's daily flows comes ahead of an anticipated Thursday afternoon report on the cash flows of the combined funds from Lipper US Fund Flows, which is expected to report weekly outflows of approximately $2 billion, a market source said.

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