Morning Commentary: Focus remains on quality junk bonds as ‘stimulus’ news lifts markets

By Paul A. Harris

Portland, Ore., March 24 – With news of fallout from the Covid-19 pandemic continuing to dominate global headlines, including the announced postponement of the Olympic 2020 summer games in Tokyo, reports that the U.S. Congress is closing in on a coronavirus stimulus bill lifted the markets on Tuesday.

As the Dow Jones industrial average climbed 6.9% at mid-morning, the iShares iBoxx $ High Yield Corporate Bd (HYG) was up 2.33%, or $1.60, at $70.23 per share.

High-yield investors continued to focus on the highest reaches of the speculative-grade credit spectrum on Tuesday morning, as select low triple B paper, fallen angels and split-rated bonds improved on the morning, according to a New York-based bond trader working from home.

In particular, rate-sensitive names were higher on the morning, the trader said.

The HCA Inc. 3½% senior notes due September 2030 (Ba2/BB-/BB) were up ¾ of a point at 80½ bid, 81 offered, the trader said.

That bond was seen as high as 97 bid on March 13.

The split-rated Charter Communications Operating, LLC/Charter Communications Operating Capital Corp. (Charter Communications, Inc.) 5¾% senior secured notes due April 2048 (Ba1/BBB-/BBB-) were up 5 points at 105½ bid, 106 offered.

Energy prices also rallied on Tuesday.

The barrel price of West Texas Intermediate crude oil for May 2020 delivery was 0.98% better at $23.59, an increase of 23 cents per barrel.

Corresponding improvement in the badly mauled high-yield energy sector tended to be confined to higher quality bonds such as fallen angel Occidental Petroleum Corp., which was also up on Tuesday, the trader said.

Monday outflows

The dedicated high-yield bond funds sustained $614 million of net outflows on Monday, according to a market source.

High-yield ETFs saw $509 million of outflows on the day.

Actively managed high-yield funds sustained $105 million of outflows on Monday, the source said.

The combined funds are tracking $1.07 billion of net outflows for the week that will conclude with Wednesday's close, according to the market source.

© 2015 Prospect News.
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