Morning Commentary: Junk edges higher on depositor reassurances; outflows continue

By Paul A. Harris

Portland, Ore., March 21 – Reassurances from U.S. Treasury secretary Janet Yellen that the government is prepared to provide further guarantees on bank deposits, should the banking crisis continue, sparked a rally in the stock market and gave a lift to high-yield bonds on Tuesday morning, according to market sources.

Cash bonds opened 1/8 of a point to ¼ of a point higher on Tuesday, sources said.

Cash appeared to lag the CDX index, which was up a point at mid-morning, according to a portfolio manager.

With the S&P 500 stock index up 0.65% at that time, the Shares iBoxx $ High Yield Corporate Bd (HYG) share price was up 0.5%, or 37 cents, at $73.54.

The financial sector – bleeding from headlines blazoning recent catastrophes involving Silicon Valley Bank, Signature Bank, Credit Suisse and First Republic Bank – was catching a break in the early going on Tuesday, sources said.

Junk-rated hybrid securities of First Republic Bank were up 1½ points on the morning, a trader said.

In other headlines, news that Liberty Global plc, through a subsidiary, launched a cash offer for shares of Belgian telecom Telenet Group Holding NV that Liberty does not already own sent Telenet’s stock (EBR: TNET) rocketing 40% higher on Tuesday morning, sources said.

The dollar-denominated Telenet Finance Luxembourg Sarl 5½% senior secured notes due March 2028 were unchanged at 103¼ offered, according to a trader.

Liberty Global has been Telenet’s controlling shareholder since 2007, a market source recounted, noting that prior to Tuesday’s news Liberty controlled 59.18% of Telenet's stock.

The primary market remained sidelined on Tuesday, the way it has been for most of March, as investors wait to see if the tide of volatility in the financial sector has crested, sources say.

High-yield investors are also keen to know whether the financial crisis will moderate the hand of the Federal Reserve Bank's Federal Open Market Committee as it meets Tuesday and Wednesday to determine what, if any, interest rate adjustments are required in the Fed's ongoing fight against inflation, a trader said.

Meanwhile the investment-grade primary market reactivated with multiple deal announcements on Tuesday morning.

High-grade bonds were up handsomely on the morning, 5 basis points to 8 bps tighter, according to the portfolio manager.

Fund flows

The dedicated high-yield bond funds sustained $463 million of net daily cash outflows on Monday, according to a market source.

High-yield ETFs saw $343 million of outflows on the day.

Actively managed high-yield funds sustained $120 million of outflows on Monday, the source said.

The combined funds are tracking $407 million of net outflows on the week that will conclude with Wednesday’s close, according to the market source.

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