Morning Commentary: Junk see-saws post-Services PMI numbers; ADT bonds improve

By Paul A. Harris

Portland, Ore., Sept. 6 – The high-yield bond market gyrated in line with equities as the post-Labor Day week got underway on Tuesday, according to a bond trader in New York.

After opening 1/8 point better, the index swung into the red after the Institute for Supply Management reported that economic activity in the services sector grew in August for the 27th month in a row, another data point which investors perceive as supporting an aggressive Federal Open Market Committee, which is expected to raise its benchmark interest rate when it meets later in September, the source recounted.

However, by mid-morning markets were plowing back into positive territory, the trader said, marking junk slightly better on the morning.

With the S&P 500 stock index up 0.29% at mid-morning, the iShares iBoxx $ High Yield Corporate Bd (HYG) share price was down 0.07%, or 6 cents, at $74.25.

The bonds of ADT Inc. ticked substantially higher on news that State Farm will make a $1.2 billion equity investment in ADT, resulting in State Farm owning approximately 15% of the Boca Raton, Fla.-based security technology company, the trader said.

The ADT Security Corp. 4 1/8% first priority senior secured notes due August 2029 were up 3 points on the news, changing hands at 88, the trader said.

Away from headline news, a high profile late-summer deal from Ford Motor Co. saw price improvement on Tuesday morning.

The Ford 6.1% senior green notes due August 2032 (Ba2/BB+) were 96 bid, 97 offered, up ¼ point, according to the trader.

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

The primary market did not generate any fresh news on Monday.

The Tellurian Inc. $1 billion notes/warrants project financing, which kicked off last week, is the only deal from a U.S.-based issuer on an ultra-thin active forward calendar.

However long it takes the primary market to regenerate, market-watchers are forecasting a sizable September – as much as $25 billion of gross new issue volume on the month – a trader said on Tuesday.

That follows a Bank of America Securities forecast of $110 billion of issuance for the remainder of 2022, which appeared in a report to its clients last week.

That volume would bring 2022 post-Labor issuance volume a mere 6% shy of the same period in 2021, which saw $117 billion, according to Prospect News data.

Fund flows

The net daily cash flows of the dedicated high-yield bond funds were flat-to-slightly positive on Friday, the most recent session for which data was available at press time, according to a market source.

High-yield ETFs saw $317 million of inflows on the day.

However, actively managed high-yield funds sustained $302 million of outflows on Friday, the source said.

The combined funds are tracking $789 million of net outflows for the week that will conclude with Wednesday's close, according to the market source.

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