Morning Commentary: High yield, ex-energy, slides 4 to 5 points as most sectors widen

By Paul A. Harris

Portland, Ore., March 16 – As the magnitude of the global Covid-19 catastrophe continued to widen on Monday the high-yield bond markets in Europe and the United States moved wider, according to market sources.

The Markit Itraxx Crossover index, comprised of the 75 most liquid euro-denominated sub-investment grade entities, widened by 100 basis points versus Friday's close, to 615 bps bid, 630 bps offered, sources in Europe said.

A London-based syndicate banker said that although spreads have been wider in the past, the 100 bps widening was the biggest in memory.

Most sectors widened on Monday: Consumer goods were 40 bps to 100 bps wider, metals/mining was 170 bps to 450 bps wider, retail was 50 bps to 150 bps wider and travel was 200 bps to 1,000 bps wider, sources said.

In the United States, with the Dow Jones industrial average was down 7.19% at mid-morning (versus 12% earlier in the session), high-yield bonds were down 4 points to 5 points, although prices were all over the place, a New York-based bond trader said.

The iShares iBoxx $ High Yield Corporate Bd (HYG) mid-morning share price was down 3.92%, or $3.14, at $76.91, well off the morning low of $74.30, a market source said.

The Zayo Group Holdings Inc. 6 1/8% senior notes due March 2028 (Caa1/CCC+) traded at 91, down 4 points on Monday morning, according to the bond trader.

The $1.08 billion issue priced at par on Feb. 20.

The widening of junk bonds and the sell-off of equities took place as the Federal Reserve Bank slashed the Fed Funds rate by 100 bps, to near 0%, on Monday, and agreed to boost its holdings of Treasury bonds by another $700 billion – that on top of moves last week that included a strategic injection of capital in excess of $1.25 trillion.

In the badly mauled energy sector, junk bonds tended to be down 5 points to 10 points, some much worse, said the bond trader, again adding the caveat that prices were all over the place.

The barrel price of West Texas Intermediate crude oil for April 2020 delivery, which fell below $30 early Monday, was $30.18 at mid-morning, down 4.89% or $1.55 on the day.

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