Morning Commentary: Junk drops ½ point; funds tracking $4.3 billion weekly outflows

By Paul A. Harris

Portland, Ore., Sept. 1 – September got off to a weak start in the high-yield bond market, in line with equities, as investors parse a stronger-than-expected employment picture, leaving little doubt that central bankers will continue efforts to chill inflation by raising interest rates.

The high-yield index was ½ point lower at mid-morning, with cash bonds down ½ point to 5/8 point amid low late-summer liquidity, according to a bond trader in the New York area.

Unemployment claims fell to 232,000 for the week to Aug. 27, their lowest level since late June, the source noted.

By mid-morning the yield of the 10-year Treasury had surged by a whopping 15 basis points, to 3.28%, the highest it's been since the beginning of summer, according to the trader.

With the S&P 500 stock index down 0.9% at mid-morning, the iShares iBoxx $ High Yield Corporate Bd (HYG) share price was down 0.34%, or 25 cents, at $73.92.

A mid-August deal from Ford Motor Co. continued a price decline that began late last week.

The Ford 6.1% senior green notes due August 2032 (Ba2/BB+) were a point lower on the morning at 96½ bid, 97½ offered, the trader said, adding that they traded Wednesday at 97 5/8.

Those bonds were 99½ bid, par offered last Friday.

The Ford green bonds came at par on Aug. 16 in a $1.75 billion high-grade-style execution.

There was also activity Thursday morning in bonds priced in early August by Charter Communications, Inc., the trader said, specifying that the CCO Holdings, LLC/CCO Holdings Capital Corp. 6 3/8% senior notes due September 2029 (B1/BB-) were 96 bid, 96½ offered.

They were 98¼ bid, 98¾ offered a week ago.

The $1.5 billion issue priced at par on Aug. 4.

A mere 8.5% of the high-yield universe now trades above par, according to a report that JPMorgan made to its clients earlier in the week, a market source said.

That's down from 78% at the beginning of the year, the source added.

There was no news on an extremely thin new issue pipeline in the early going on Thursday.

Tellurian Inc. did a Wednesday investor conference call for its $1 billion notes/warrants project financing deal.

The call went well, according to a source who participated.

The deal is comprised of units that include an 11¼% senior secured note due 2027 (initial talk 95.5 area), with attached warrants for the company’s common stock.

It is expected to price in the post-Labor Day week.

In Europe there is one junk-rated deal in the market, a $300 million offering of senior secured sustainability-linked notes (B2/B) from U.K.-based NES Fircroft (NES Fircroft Bondco AS) coming in a Nordic transaction.

Marketing commenced early in the present week.

Outflows

The dedicated high-yield bond funds sustained a hefty $1.36 billion of net daily outflows on Wednesday, according to a market source.

Actively managed high-yield funds saw $1.11 billion of outflows on the day, one of their biggest daily outflows so far this year, the source said.

High-yield ETFs sustained $250 million of outflows on Wednesday.

As the market awaits a report on the weekly cash flows of the various asset classes from fund-tracker Refinitiv Lipper, the combined junk bond funds are tracking a massive $4.3 billion of net outflows for the week to Wednesday’s close, according to the market source.

As reported, the combined funds sustained $4.57 billion of outflows in the week to Aug. 24.

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