Morning Commentary: Junk falls ½ point in extremely thin pre-holiday Monday trading

By Paul A. Harris

Portland, Ore., Dec. 24 – The junk index fell about half a point in the early going on Christmas Eve Monday, according to a bond trader.

Only $233 million of bonds had traded by mid-morning, an extremely small amount, the trader said.

Heading into the Christmas holiday, market liquidity was super-thin, the source added.

There were no names trading on headline news, the trader said.

High-yield ETFs were lower on the morning. The iShares iBoxx $ High Yield Corporate Bd (HYG) was down 0.45%, or 36 cents, at $79.87.

Metrics to which the junk market attunes were all lower on the morning.

Stock indexes in the United States were sharply lower.

The barrel price of West Texas Intermediate Crude for February 2019 delivery was down 2.13%, or 97 cents, at $44.62.

By mid-morning the yield of the 10-year Treasury had bounced off morning lows but was still well in the red at 2.769%.

Looking to January

As is customary, the primary market remained dormant on Christmas Eve.

However, December in the new issue market was anything but customary.

December 2018 became the first month in over a decade to post no new high-yield issuance.

In the dollar-denominated primary market a thin pipeline of committed financing deals, some of which had been expected to materialize in December, will probably come in January, syndicate sources say.

There are always a few opportunistic debt refinancing deals waiting in the wings, sources add, specifying that opportunistic issuers are very unlikely to appear until volatility, which has rocked the global capital markets since early November, subsides.

If there is a ray of sunlight in the Winter 2018 high-yield market, it shines from Europe, where the sell-off began earlier than it did in the United States, sources say.

And some European high-yield investors believe it has gone far enough and that bonds are oversold, according to a senior syndicate official in London.

Investors are beginning to see bargains and are preparing to take advantage of them, the source claimed.

January 2019 could turn out a meaningful amount of issuance in Europe, the banker said.

Global corporations with access to the European high-yield market, even those based in the United States, will continue to take advantage of comparatively low European rates in 2019 and issue in euros as they did in 2018, the source added.

However just as in the dollar-denominated market, volatility could be a mitigating factor in the regeneration of the European high-yield market, the banker advised.

Flows-

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