Morning Commentary: Junk flat ahead of Fed minutes; Volvo green notes firm in secondary

By Paul A. Harris

Portland, Ore., May 25 – The high-yield bond market opened unchanged on Wednesday as investors awaited the pending release of minutes from the early May Federal Reserve meeting, sources said.

A Fed narrative focused more closely on the slowing economy than on inflation – with any hint that the central bank might move a little less aggressively on rates later this year – could cause asset prices to pop higher, a New York-based bond trader said.

By mid-morning, with the Dow Jones industrial average up 0.5%, junk was possibly up 1/8 point, a sellside source said.

Against this backdrop, the iShares iBoxx $ High Yield Corporate Bd (HYG) share price was up 0.78%, or 60 cents, at $77.82.

The new Volvo Car AB 4¼% green bonds due May 2028 (expected ratings Ba1/BB+) were trading above new issue price at 99¾ bid on Wednesday morning, sources said.

The €500 million issue priced on Tuesday at 99.353 to yield 4 3/8%, playing to strong enough demand that the Sweden-based luxury carmaker was able to pare its concession to a risk-averse junk bond market to ¼ of a point from 3/8 of a point, a trader reckoned.

The most recent dollar-denominated deal came a week ago when Carnival Corp. priced a $1 billion issue of 10½% senior notes due June 2030 (B2/B) at par.

Those bonds were better on Wednesday morning at 99¼ bid, par offered, according to the sellside source, who added that the paper changed hands on Tuesday at 98½.

There was no primary market news, and the active forward calendar remained empty.

The likelihood of the dollar-denominated new issue market reactivating ahead of Friday’s early, pre-Memorial Day weekend close is becoming increasingly remote, the sellsider said.

ETFs see inflows

High-yield ETFs saw a hefty $589 million of daily cash inflows on Tuesday, according to a market source.

The ETFs have now seen $1.3 billion of inflows since May 18 and are posting net positive cash flows for May after sustaining $16.1 billion of outflows between January and April, the source said.

Meanwhile, actively managed high-yield funds saw $115 million of outflows on Tuesday, according to the market source.

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