Morning Commentary: Junk market holds firm amid low liquidity; ETF inflows continue

By Paul A. Harris

Portland, Ore., Aug. 30 – The high-yield bond market opened a touch firmer on Wednesday amid low, late-summer liquidity, according to a bond trader in New York.

“The market feels like it wants to go higher, but right now people are sitting on their hands, content to wait,” the trader said.

With the Dow Jones industrial average up 0.03% at mid-morning, the Shares iBoxx $ High Yield Corporate Bd (HYG) share price was absolutely flat, at $75.36.

The Tenneco Inc. 8% senior secured notes due November 2028 (B1/B), a $1.9 billion issue that came in a mid-August undertaking to syndicate hung bridge loan debt leftover from Apollo’s 2022 buyout of Tenneco – hitting the secondary market like a lead balloon – were unchanged and inactive on Wednesday morning at 82 bid, 82½ offered, the trader said.

The notes priced at 85 on Aug.15.

The primary market remained idle and is not expected to reactivate until Sept. 5, when the market reopens following the extended Labor Day holiday weekend in the United States.

Fund flows

The high-yield ETFs reported $650 million of daily cash inflows on Tuesday, their third substantial daily inflow in as many days, following inflows of $135 million on Monday and $502 million last Friday, according to market sources.

High-yield investors lately face challenges as they attempt to buy cash bonds and are content to let the ETFs do the lifting, the trader commented.

The ETFs, for their part, have not been furiously active buyers, but rather seem content, for the moment, to let their premiums grow, the source added.

Meanwhile the actively managed high-yield funds sustained $85 million of outflows on Tuesday, according to a market source.

The combined funds – ETFs and actively managed – are tracking $1.05 billion of net inflows for the week that is set to conclude with Wednesday’s close, the source added.

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