Morning Commentary: Oil patch bonds, crude prices improve; market enters holiday mode

By Paul A. Harris

Portland, Ore., Dec. 21 – Junk opened around ¼ point better in thin trading on Tuesday, a bond trader said.

Credit investors did not appear to be swept up in the turbulence that took hold of stocks on Monday, the source said.

Market activity on Tuesday morning was what one would expect on the winter solstice – extremely light.

With the Dow Jones industrial average 1% higher at mid-morning, the iShares iBoxx $ High Yield Corporate Bd (HYG) share price was up 0.3%, or 26 cents, at $86.48.

There seems to be a belief in the market that the government will somehow overcome stalemate in the legislature in order to enact president Joe Biden's proposed Build Back Better climate and infrastructure bill, the trader said.

With activity elsewhere practically non-existent, bonds in the petroleum portion of the energy sector were up as much as half a point, in line with better crude oil prices.

As the mid-morning barrel price of West Texas Intermediate crude for February 2022 delivery was up 2.52%, or $1.73, at $70.34, the Occidental Petroleum Corp. 4.4% senior notes due August 2049 gained ½ point, according to the trader, who spotted them at 101½ bid.

Bonds of driller Nabors Industries, Inc. were also better. The Nabors 5¾% senior notes due February 2025 were up ½ point at 89¼ bid, after going out Monday at 88¾ bid, the trader said.

The prices of bonds from companies whose fates rest with recoveries upon a hoped-for abatement of the coronavirus pandemic – the so-called “reopening trades” – were also up ½ point on Tuesday, the source added.

Cash flows positive

High-yield ETFs saw $355 million of daily cash inflows on Monday, according to a market source.

Those follow the $263 million of inflows that the ETFs saw on Friday, and the even more impressive $781 million of inflows that they posted last Thursday.

Meanwhile the actively managed high-yield funds saw $63 million of inflows on Monday, the source said.

The combined funds are tracking $1.72 billion of net inflows for the week that will conclude with Wednesday's close, trailing the previous week’s $200 million of net outflows, according to the market source.

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