Morning Commentary: Junk opens ¼ point lower; HCA bonds widen as company pares guidance

By Paul A. Harris

Portland, Ore., April 22 – A fresh round of interest rate scares pulled the high-yield bond market ¼ point lower in the early going on Friday, according to a bond trader in New York.

Remarks made by Fed chairman Jerome Powell in a panel discussion hosted by the International Monetary Fund on Thursday, indicating that a half-percent increase in the benchmark Fed Funds rate will be under consideration when the Federal Open Market Committee meets in May, sent the capital markets tumbling, sources say.

With the Dow Jones industrial average down 1.2% at mid-morning, the iShares iBoxx $ High Yield Corporate Bd (HYG) share price was down a dime, or 0.13%, at $79.64.

Bonds of HCA Healthcare Inc. traded lower and wider after the company reported that it missed revenue estimates for the first quarter and pared its guidance, pinning the blame on higher-than-expected inflationary pressures on labor costs.

HCA's investment-grade secured paper went 10 basis points wider to start the Friday session, and high-yield unsecured notes traded a point lower, the trader said.

The speculative-grade new issue bourse sat idle on Friday morning.

The market anticipates news early in the week ahead on sizable debt offerings related to Carvana Co.'s $2.2 billion acquisition of the auction business of Adesa, Inc. from KAR Auction Services, Inc.

Feelers are heard to be out on a $1 billion offering of unsecured notes with initial guidance in the 9½% area, a sellside source said.

Thursday outflows

The dedicated high-yield bond funds sustained $127 million of daily net outflows on Thursday, according to a market source.

High-yield ETFS saw $108 million of outflows on the day.

Actively managed high-yield funds sustained $19 million of outflows on Thursday, the source said.

News of Thursday's daily flows followed a Thursday afternoon report that the combined funds sustained $886 million of net outflows in the week to last Wednesday's close, according to Refinitiv Lipper.

It was the second consecutive negative weekly cash flow trailing the previous week's $4 billion outflow, according to the market source.

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