Morning Commentary: Junk slips in heavy market; high-yield ETFs seeing big outflows

By Paul A. Harris

Portland, Ore., Feb. 14 – Heaviness retained its hold on the high-yield market as the Feb. 14 week got underway, according to a junk bond trader in New York, who was marking the broad market 1/8 point to ¼ point lower on the morning.

With the Dow Jones industrial average down 300 points at mid-morning, the iShares iBoxx $ High Yield Corporate Bd (HYG) share price was flat at $82.63, off 3 cents or 0.04%.

The Level 3 Financing Inc. (Lumen Technologies) 3¾% sustainability-linked senior notes due July 15, 2029 traded at 88½, down ¾ of a point to 1 point on the morning, on no news in particular, the trader said.

Among recent issues, the McAfee Corp. (Condor Merger Sub, Inc.) 7 3/8% senior notes due Feb. 15, 2030 (Caa2/CCC+) were 95¾ bid, 96¼ offered.

The $2.02 billion issue priced at par on Feb. 3.

The price depreciation of that issue is more or less reflective of the market in general, said the trader, noting that bonds marked lower on Monday outnumbered those that were being marked higher.

Notwithstanding the fabulous early 2022 rally in energy prices, high-yield energy names were not necessarily outperforming, the trader said.

The Laredo Petroleum, Inc. 7¾% senior notes due July 2029 (B3/B) were 96¼ bid, 97¼ offered on Monday.

Those bonds priced at par in the heady days of July 2021 in a $400 million issue.

There was no new issue activity early Monday, as the active forward calendar stood empty.

However, given any kind of supportive capital markets backdrop, there is $5 billion to $6 billion of new issue business expected to materialize during the Feb. 14 week, a syndicate banker said last Friday.

Viasat Inc. is expected to bring a $1.6 billion offering of unsecured notes with assumed pricing of 5½% in the week ahead, sources say.

Viasat's concurrent $700 million term loan B (Ba3/BB/BB+) kicked off last week.

Outflows

The dedicated high-yield bond funds sustained $1.47 billion of daily net outflows on Friday, according to a market source.

High-yield ETFS saw $1.27 billion of outflows on the day, the source said, noting that the junk ETFs have now seen more than $11 billion of outflows, or 14% of assets under management, since Jan. 4.

Actively managed high-yield funds sustained $195 million of outflows on Friday, according to the market source.

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