Morning Commentary: Concerns in banking sector take junk lower; outflows continue

By Paul A. Harris

Portland, Ore., March 15 – The high-yield bond market opened lower on the Ides of March and slid further by mid-morning amid ongoing concerns about the financial health of the banking sector, traders said.

Better quality paper was down ¾ of a point to a point, while high beta names were down 1 point to 2 points.

Although a trader was seeing two-way markets on Wednesday morning, things were sloppy, and “a little frozen,” the source remarked.

Low-ball bids were getting hit, the trader added.

Although there was no evidence yet that people needed to raise cash, traders were keeping an eye on that situation, the source conceded.

The DISH Network Corp. 11¾% senior secured notes due November 2027 (Ba3/B+), one of the new year's benchmark issues, were 95 bid, 95½ offered on Wednesday morning, the trader said, adding that they were trading in a 97-98 context earlier in the week.

Last Thursday that paper was 99½ bid, par offered, the source recounted.

The $1.5 billion deal, an add-on, priced at 102 on Jan. 17.

The investment-grade debt securities of Credit Suisse Group AG were swimming into the gunsights of certain high-yield investors after those securities plummeted on news that Saudi National Bank, the Swiss institution's biggest shareholder with 9.8% of the shares, will not ride to the rescue by increasing that stake, a trader said.

Credit Suisse’s dollar-denominated tier 1 bonds were seen more than 20 cents lower on the day, according to market sources.

On Wednesday the bank warned its shareholders that there were “material weaknesses” in its financial reporting.

Midway into the final full week of winter, the primary market was shuttered. The last dollar-denominated junk bond deal priced nearly a fortnight ago.

Ten-year Treasuries were yielding a year-to-date low of 3.44% at mid-morning, signaling a widespread flight from risk, a trader noted.

Amid the late-winter volatility and risk aversion that has taken hold in the global capital markets, it is unlikely that the high-yield new issue bourse will reopen soon, sources say.

Fund flows

The dedicated high-yield bond funds sustained $474 million of net daily cash outflows on Tuesday, according to a market source.

Actively managed high-yield funds saw $243 million of outflows on the day.

High-yield ETFs sustained $231 million of outflows on Tuesday, the source said.

The combined funds are tracking $1.53 billion of net outflows on the week that will conclude with Wednesday's close, according to the market source.

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