Morning Commentary: Junk slips as markets digest healthier-than-expected jobs numbers

By Paul A. Harris

Portland, Ore., Oct. 7 – A non-farm payroll report showing that unemployment declined in September sent the capital markets tumbling on Friday, with the high-yield bond market generically down half a point following the report's release, according to a bond trader in New York.

The employment news sparked selling, with investors applying the bear market formulation that good macroeconomic news is bad news for the financial markets, as it will almost certainly prompt the central bank to continue raising interest rates, the source recounted.

Trading volume in high-yield bonds remained muted, the trader specified.

With the S&P 500 stock index off 2% at mid-morning, the iShares iBoxx $ High Yield Corporate Bd (HYG) share price was down 0.6%, or 44 cents, at $72.57.

Right on the heels of the Friday jobs report, the Ford Motor Co. 6.1% senior green notes due August 2032 (Ba2/BB+) sustained a 1-point price drop, according to the trader, who spotted them at 90 bid, 90½ offered.

The Ford green notes, a $1.75 billion deal that priced at par in mid-August – with widening in the junk bond market already well underway – provide a decent on-the-run indicator of the market's present sentiment, sources say.

The Twitter, Inc. 5% senior notes due March 2030, which saw an uptick in activity earlier in the week when billionaire Elon Musk reasserted his intention of acquiring the company, were unchanged on Friday morning at 98¼ bid, 99¼ offered, according to the trader.

They climbed to an intraday high of 101¼ on Tuesday, as the market mulled Musk’s change of heart, renewing interest in the acquisition from which he had previously been attempting to withdraw.

Subsequent to the revival news, the Twitter 5% notes began slipping as investors learned that anticipated private equity money in support of the acquisition would not be forthcoming, leaving the investment banks to sweat their financing commitments to the deal in a market where debt syndications have become challenging, indeed.

Meanwhile, on Friday morning the high-yield primary market remained idle.

Fund flows

The high-yield ETFs saw $380 million of daily cash inflows on Thursday, according to a market source.

That news follows a Thursday afternoon report that the dedicated high-yield bond funds saw $1.872 billion of net inflows during the week to the Wednesday, Oct. 5 close, according to Refinitiv Lipper.

It was the largest weekly inflow since the week to Aug. 3, the market source said.

And it was entirely concentrated in the junk ETFs, which saw $2.54 billion of inflows on the week.

Actively managed high-yield funds actually sustained $667 million of outflows during that period, extending their stretch of consecutive negative weekly flows to seven weeks, the source said.

The actively managed funds sustained another $145 million of daily outflows on Thursday, according to the market source.

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