Morning Commentary: Calendar pushed back as funds see big outflows on Tuesday; market awaits Fed

By Paul A. Harris

Portland, Ore., March 15 – Big Tuesday outflows from the dedicated high-yield funds, along with a pending decision on rates by the Federal Open Market Committee, were commanding attention in the high yield market on Wednesday morning, sources said.

Actively managed high-yield funds sustained a massive $1.05 billion of outflows on Tuesday, according to a trader, who recounted that Tuesday's negative flow came on the heels of Monday's big $550 million daily outflow.

High-yield ETFs were also substantially negative on Tuesday, sustaining $240 million of outflows, trailing Monday's $293 million outflow.

As the market digested the negative fund flows, players awaited the drop of another shoe, this one from the Federal Reserve Bank's Federal Open Market Committee, which is widely expected to bump the benchmark Federal Funds rate later on Wednesday.

Following the record-setting pace of early March new issues, some dollar-denominated deals aboard the active calendar have been pushed back, the trader said.

These include Foresight Energy LLC’s $500 million offering of seven-year second-lien senior secured notes (Caa2/CCC/CCC) and the First Quantum Minerals Ltd. $1.6 billion two-part offering of senior notes (B3/B-/B), both of which had been expected to price on Wednesday but are now expected to price on Thursday, the trader said.

There are other deals to be done, but the market is not letting that happen right now, the trader said, citing the above-mentioned outflows, the Fed decision and the early March burst of issuance, much of it priced “on the screws,” or rich to the extent that secondary market performance, in many cases, has been lackluster.

Market tone improves

All of that said, the tone of the market was decent at midmorning, the trader said, noting it was not great but decent.

Wednesday morning was the first morning in two weeks that did not see traders being bombarded by bids wanted in competition (BWIC) lists from the high-yield ETFs, for example, the source remarked.

High-yield ETFs were higher on the morning. The iShares iBoxx $ High Yield Corporate Bd (HYG) was up 0.42%, or 36 cents, at $86.47 per share. The SPDR Barclays High Yield Bond ETF (JNK), at 36.40 per share, was up 0.43%, or 15 cents.

SPIE launches tight to talk

Wednesday morning's sole nugget of primary market news emanated from Europe.

France-based engineering group SPIE SA launched its €600 million offering of seven-year notes at 3 1/8% on Wednesday, tight to earlier guidance in the 3Ό% area, a London-based debt capital markets banker said.

The deal is expected to price shortly.

Beyond SPIE there is a decent deal pipeline in Europe, which the dealers intend to march onto the calendar, market conditions permitting, the banker added.

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