Morning Commentary: High yield notches lower on strong jobs report; big inflows continue

By Paul A. Harris

Portland, Ore., June 3 – The high-yield bond market slipped on Friday morning following a report from the Bureau of Labor Statistics (BLS) that nonfarm payrolls handily exceeded economists' expectations.

Junk, having opened 1/8 point lower in line with weaker equities, earlier Friday, dropped further after the jobs report, to perhaps ¼ lower on the morning, a sellside source said.

The BLS reported that U.S. employers added 390,000 jobs last month, beating estimates of 320,000.

Based on that stronger-than-expected report it is unlikely that the Fed will alter its charted inflation-fighting course of raising rates and tightening the supply of money – news to which the markets, with their preference for easy money, reacted negatively, the sellsider said.

The entire bond market sold off on the heels of the report, with the yield of the 10-year Treasury subsequently moving 5 basis points wider, the sellsider said.

With the S&P 500 stock index down 1.8% at mid-morning, the iShares iBoxx $ High Yield Corporate Bd (HYG) share price was 0.85% lower, down 68 cents at $78.56.

Prices of some recent issues also eased following the nonfarm payrolls report.

The Advanced Drainage Systems Inc. 6 3/8% senior notes due June 2030 (Ba2/B+) changed hands at 101 1/8 in round-lot trading at mid-morning, according to the sellsider.

Those notes, which priced at par in a $500 million issue on Thursday – in a deal heard to have been four-times oversubscribed – were 101 5/8 bid, 102 1/8 offered at the Thursday close, the source recounted.

The Builders FirstSource, Inc. 6 3/8% senior notes due June 2032 (Ba2/BB-) were 99 7/8 bid at mid-morning on Friday, having gone out Thursday at par bid, par ¼ offered, the sellsider said.

The $700 million issue priced at par during a Wednesday session in the primary market that ultimately generated $4.3 billion of issuance, the first big day in the new issue market in over a month.

Meanwhile the primary market sat idle on Friday morning.

There is one deal on the active forward calendar.

Maxar Technologies Inc. plans to shop its $500 million offering of five-year senior secured notes (B2/B) on a Monday to Wednesday roadshow in the week ahead.

Initial guidance has the notes coming to yield in the mid-to-high 7% area.

Big inflows continue

High-yield ETFs saw a whopping $1.12 billion of daily cash inflows on Thursday, according to market sources.

Actively managed high-yield funds saw $35 million of inflows on the day.

News of Thursday’s daily inflows follows a Thursday report that the combined funds saw $4.77 billion of net inflows for the week to Wednesday’s close, according to Refinitiv Lipper.

That was the largest weekly inflow to the asset class thus far in 2022 and the seventh largest inflow on record, a bond trader said.

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