Morning Commentary: Junk levels off as equities turn positive; ETFs see more big outflows

By Paul A. Harris

Portland, Ore., Aug. 23 – As equities clawed their way back into positive territory, the high-yield index rose 3/8 of a point at mid-morning on Tuesday, while cash bonds were unchanged, according to a bond trader in New York.

With the S&P 500 stock index up 0.31% at mid-morning, the iShares iBoxx $ High Yield Corporate Bd (HYG) share price was up 0.25%, or 19 cents, at $76.27.

Oil prices rallied as Saudi Arabia's energy minister suggested possible production cuts to support prices, the trader said.

Those comments come in conjunction with an anticipated report from the American Petroleum Institute, due out later on Tuesday, expected to show a decline of 1.5 million barrels in crude inventories, also supporting stronger oil prices, the source added.

The barrel price of West Texas Intermediate crude for October delivery was $93.67 at mid-morning, up $3.31, or 3.66%.

The Occidental Petroleum Corp. 6 1/8% notes due January 2031, the most active name in the company’s stack of bonds, were 107¾ bid, 108 offered, unchanged at mid-morning, the trader said.

Among recently minted speculative-grade bonds, the Ford Motor Co. 6.1% senior green notes due August 2032 (Ba2/BB+) were unchanged on the morning at 98½ bid, 99 offered, the trader said.

That paper took a beating during the brutal Monday session in which they opened at 99¼ bid, 99¾ offered, the trader recounted.

On Monday, Ford announced it will cut 3,000 white collar jobs as it moves to transition into electric vehicles.

The new Ford green bonds came a week ago in a $1.75 billion issue at par in a high-grade-style execution.

The primary market remained idle on Tuesday morning, and is apt to remain that way until the conclusion of the extended Labor Day holiday weekend, the trader said, but added that one-off deals during the late-summer lull in the high-yield new issue market are never completely out of the question.

ETFs see Monday outflows

For the second consecutive session, the high-yield ETFs sustained outflows of greater than $1 billion, posting negative $1.07 billion on Monday, the most recent session for which data was available at press time, according to a market source.

The big Monday outflows from the ETFs followed Friday's even-bigger $1.374 billion outflow.

Actively managed high-yield funds were positive on Monday, posting $50 million of inflows on the day, the source said.

The combined funds are tracking a whopping $2.97 billion of net outflows on the week that will conclude with Wednesday’s close, according to the market source.

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