Morning Commentary: Rate reality reset drags junk lower; ETFs see outflows on Friday

By Paul A. Harris

Portland, Ore., Aug. 22 – The capital markets remained in the grip of interest rate anxiety as the new week got underway, according to a bond trader in the New York area.

High-yield bonds were off ¼ of a point to ½ of a point at mid-morning, the trader said.

A market-friendly narrative that had the Fed backing off of its aggressive inflation-fighting stance in order to address a weakening economy has given way to one that has the central bank, fangs bared, continuing to move rates higher in an attempt to curb inflation, come what may, sources say.

With the S&P 500 index down 1.75% at mid-morning, the iShares iBoxx $ High Yield Corporate Bd (HYG) share price was down 0.84%, or 65 cents, at $76.30.

Among bonds priced last week in a $5.18 billion burst of mid-August high-yield issuance, the Ford Motor Co. 6.1% senior green notes due August 2032 (Ba2/BB+) were 99¼ bid, 99¾ offered, the trader said, noting that the paper traded above par on Friday.

The bonds came in a $1.75 billion issue at par in a high-grade-style execution last Tuesday.

Bonds price last Thursday from Univision Communications Inc., the 7 3/8% add-on senior secured notes due June 30, 2030 (B1/B+), traded Monday at 101, down ¾ of a point.

The upsized $400 million issue (from $300 million), priced at 101.5.

There was no activity in the primary market.

With the active forward calendar empty, market sources are wondering aloud whether new issuance for the summer of 2022 has now run its course.

Few expect much if any primary market activity ahead of the Labor Day holiday weekend, the traditional summer-fall divide in the bond market.

ETFs see outflows

High-yield ETFs sustained a massive $1.374 billion of outflows on Friday, according to a market source.

Actively managed high-yield funds were positive on the day, posting $105 million of inflows on Friday, the source said.

The combined fund are tracking $1.95 billion of net outflows for the week that will conclude with Wednesday's close, according to the market source.

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