Morning Commentary: Driven by ravenous ETFs, junk market maintains post-Fed lift

By Paul A. Harris

Portland, Ore., Feb. 2 – Fed chairman Jerome Powell may or may not have been extending an olive branch to investors during a Wednesday press conference following the announcement of the Federal Open Market Committee’s decision to bump rates another 25 basis points in the central bank’s ongoing effort to tame inflation.

In any case, investors appeared to derive encouragement, according to market sources, noting that during the chairman’s press conference the capital markets turned sharply higher.

Although Powell went on to warn that there is more tightening ahead, it was all good in the junk bond market on Thursday morning, according to bond traders.

High-yield ETFs proffering offers-wanted-in-competition (OWICs) were lifting the market, according to a bond trader, who was marking cash bonds ½ point higher on the morning.

With the S&P 500 stock index up 1.45% at mid-morning, the iShares iBoxx $ High Yield Corporate Bd (HYG) share price was up a healthy 0.68%, or 52 cents, at $77.28.

All recent issues were going along for the ride, the trader said.

As a measure of the demand pressure lifting the asset class, the Spirit AeroSystems Inc. 9 3/8% senior secured first-lien notes due November 2029 (Ba2/BB-) changed hands at 110¾ on Thursday morning.

Pre-Fed that paper was 108 bid, 109 offered, the trader said.

The $900 million issue priced at par early last November.

In the new issue market one deal was announced.

Uniti Group expects to price a $1.75 billion offering of five-year senior secured notes (expected ratings B2/B/BB+) on Friday.

The deal, which was set to kick off on a Thursday morning conference call with investors, is in the market with initial guidance in the 11% area, sources say.

That seemed cheap to a bond trader, who focuses on the asset class's high-beta situations and who went on to say that pricing will almost certainly come in.

No other issuers appeared to be waiting in the wings on Thursday morning, sources said.

However, market conditions are the best that they’ve been in months, and deals are bound to come in the near term, they add.

Fund flows

The dedicate high-yield mutual funds saw $517 million of net daily cash inflows on Wednesday, according to a market source.

High-yield ETS saw $407 million of inflows on the day.

Actively managed high-yield funds saw $110 million of inflows on Wednesday, the source said.

As the market awaits a report on the weekly cash flows of the various asset classes from fund-tracker Refinitiv Lipper, expected later Thursday, the combined funds are tracking $600 million of net outflows on the week that concluded with Wednesday's close, according to the market source.

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