Morning Commentary: Junk improves post-CPI; ETFs see $741 million Tuesday inflows

By Paul A. Harris

Portland, Ore., July 12 – A tamer-than-expected CPI number pushed the high-yield bond market up 3/8 of a point on Wednesday morning, according to a bond trader in New York.

The Wednesday report from the U.S. Bureau of Labor Statistics showed that core prices rose in June at an annual rate of 4.8%, less than analysts’ expectation of 5%, and down from 5.3% in May.

Whether or not inflation has moderated to the extent that Fed policy-makers will continue June’s pause in rate increases, when they convene at the Federal Open Market Committee meetings later this month, remains to be seen, the trader remarked.

With stocks rallying at mid-morning – at which time the S&P 500 index was up 1.05% – the iShares iBoxx $ High Yield Corporate Bd (HYG) share price was half a dollar better, up 0.67%, at $75.12.

The Viking Cruises Ltd. 9 1/8% senior notes due July 2031 (Caa1/B-) saw improvement that was in line with the market, said the trader, who marked them 101½ bid, in moderately active trading.

Secondaries were notably slow in the wake of Wednesday morning’s CPI, the source added.

The dollar-denominated new issue market remained dormant on the morning, with just one deal on the active calendar.

Seadrill Finance Ltd. is on a roadshow for a $450 million offering of seven-year senior secured second-lien notes (B2/BB/B+), in the market with initial guidance in the 8¾% area.

That deal was heard to be playing to a healthy $1.2 billion of demand across 68 accounts on Wednesday morning, the trader said.

Pricing is expected on Thursday.

In the much more active euro-denominated primary market, TIM SpA (formerly Telecom Italia) launched €750 million of five-year senior bullet notes (expected ratings B1/B+/BB-) at 7 7/8%, at the tight end of talk and inside of initial guidance.

That deal is set to price later Wednesday.

Fund flows

High-yield ETFs saw a hefty $741 million of daily cash inflows on Tuesday, according to a market source.

Actively managed high-yield funds, however, sustained $104 million of outflows on the day.

The combined funds are tracking $130 million of net outflows for the week that will conclude with Wednesday’s close, the market source said.

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