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Morning Commentary: Junk shakes off CPI jolt; new Jones Energy bonds hang in at new issue price
By Paul A. Harris
Portland, Ore., Feb. 14 – News that the Consumer Price Index indicated more inflationary pressure on the U.S. economy than the market expected sent junk bonds, as well as stocks, tumbling at the East Coast open, a high-yield bond trader said. However, junk bounced back and was basically unchanged at mid-morning, the source added.
That was not the case for the high-yield ETFs.
The iShares iBoxx $ High Yield Corporate Bd (HYG) was down 0.25%, or 21 cents, with a share price of $85.05 at mid-morning.
However as measured by target prices on the most recent bids-wanted-in-competition (BWIC) lists, the ETFs appear to be in considerably better shape than they were late last week, the trader said.
The most recent news on the daily cash flows of the ETFs was decidedly negative.
The high-yield ETFs sustained $609 million of outflows on Tuesday.
Actively managed high-yield funds were also negative on Tuesday, sustaining $135 million of outflows on the day.
Primary quiet
As was the case on Tuesday, the new issue market remained quiet on Wednesday.
There are thought to be three to five small deals in the pipeline, all dependent upon reasonably favorable market conditions, the trader said.
The most recent deal to price, the Jones Energy Holdings, LLC 9¼% senior secured first-lien notes due March 2023 (B2//B), were hanging in around new issue price on Wednesday, at 97½ bid, 97¾ offered, the trader said.
Although its issues were said to be credit-specific, leading to price concessions and covenant tightening (including a springing maturity), the Jones Energy deal may have served to shine a harsher light upon a new dynamic at play in the formerly issuer-friendly primary market: given rising rates and market volatility junk bond investors are now in a position to demand higher pricing and greater security, sources say.
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