Morning Commentary: Junk follows through with late Thursday rally; ETF outflows continue

By Paul A. Harris

Portland, Ore., Feb. 25 – High-yield bonds opened ½ point to 1 point higher on Friday morning as capital markets in the United States saw follow-through on a dramatic late Thursday rally set in motion by assurances from president Joe Biden that measures will be put in place to prevent spiking energy prices from exacerbating already serious inflation problems, according to market sources.

With the Dow Jones industrial average up 593 points at mid-morning, the iShares iBoxx $ High Yield Corporate Bd (HYG) share price was up a handsome 0.57%, or 48 cents, at $83.62.

Bonds priced Wednesday by Twitter, Inc. – the first high-yield bond deal to clear the market in a fortnight – also saw a dramatic Friday morning price appreciation after turning in a lackluster post-pricing performance late Wednesday and Thursday.

The Twitter 5% senior notes due March 2030 (Ba2/BB+) were par 1/8 bid, par 5/8 offered on Friday morning after breaking to 99¾ bid, par offered on Wednesday afternoon and trading as low as 98 bid, 99 offered on Thursday, sources said.

The $1 billion bullet deal priced at par in a Wednesday drive-by.

The new issue market sat idle on Friday, with the active forward calendar empty.

The primary market's most recent news came from BellRing Distribution, LLC, which withdrew an $840 million offering of 10-year senior notes (B3/B) amid the Thursday market volatility that followed Russia's invasion of the Ukraine.

Thursday outflows

High-yield ETFs sustained $758 million of daily cash outflows on Thursday, according to a market source.

Actively managed high-yield funds, however, put up strong positive fund flow numbers on the day, posting $350 million of inflows on Thursday, the source said.

News of Thursday's daily flows follows a Thursday afternoon report that the combined funds sustained $996 million of net outflows, including $494 million of outflows from the ETFs, in the week to the Wednesday, Feb. 23 close, according to Refinitiv Lipper.

Those weekly outflows extend the run of negative weekly cash flows from the junk funds to seven weeks, during which time they sustained $17.7 billion of net outflows, the most significant run of negative flows since the period ending March 25, 2020, according to the market source.

Year to date the cash flows of the junk funds were negative $18.9 billion, including $10.7 billion from the ETFs, at Thursday's close, the source said.

That follows the $13.2 billion of total net outflows that the junk funds sustained in the full year of 2021.

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