Morning Commentary: High yield enters post-Brexit week softer; volume low; ETFs selling

By Paul A. Harris

Portland, Ore., June 27 – High-yield bonds continued to be under pressure on Monday, as investors attempt to regain their footing following last week’s historic Brexit vote in which voters in the United Kingdom elected to leave the European Union.

Junk was off 1 to 2 points on low volume on Monday, a trader said, adding that the market was generally quiet and that there were buyers at lower levels.

High-yield ETFs were selling at the New York mid-morning.

ETF share prices were substantially lower. The iShares iBoxx $ High Yield Corporate Bd (HYG) was down 0.86%, or 72 cents, at $82.53 per share. The SPDR Barclays High Yield Bond ETF (JNK) at $34.71 per share, was taking an even bigger hit, down 1.13%, or 39 cents.

Some high-yield names with European exposure were underperforming the market, the trader said.

The Numericable-SFR SA dollar-denominated 7 3/8% senior secured notes due May 1, 2026 were 95¾ bid on Monday morning, versus par ¼ bid on Thursday.

However other names with European exposure were doing OK, with bonds of Ardagh Packaging, and OI European Group BV (an indirect subsidiary of Owens-Illinois Group Inc.) down 1 to 2 points with the market.

The primary market, meanwhile, was dead quiet, as sources professed the expectation that issuers might wait to return until the post-Independence Day period, as the market would be apt to extract a premium due to post-Brexit volatility.

Among recent issues, the AmeriGas Partners, LP/AmeriGas Finance Corp. 5 5/8% senior notes due May 20, 2024 were off with the market, at 98¾ bid, 99¾ offered, 99¾, down about a point, the trader said.

The longer-dated AmeriGas 5 7/8% senior notes due May 20, 2026 down a little more at 98 bid, 99 offered. They were par bid, 101 offered on Friday.

Friday inflows

The cash flows of the dedicated high-yield bond funds were positive on Friday, the trader said, adding that reports of inflows would seem to fly in the face of Friday’s widespread post-Brexit risk aversion.

Nevertheless, high-yield ETFs saw $303 million of inflows on Friday, while asset managers saw $110 million of inflows on the day.

In part those numbers could reflect the late-Thursday period, when markets in the United States rallied hard on the expectation – which later proved incorrect – that U.K. voters would elect to remain in the E.U.

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