Morning Commentary: Junk rallies post-PMI; ETFs see big Tuesday inflows

By Paul A. Harris

Portland, Ore., Aug. 23 – The high-yield bond market opened unchanged on Wednesday, sources said.

By mid-morning, following the release of Purchasing Managers' Index numbers which suggest that the economy is contracting – data that might moderate the claws of interest rate hawks in the central bank – the junk bond index was up ¼ of a point, and there was a discernible bid in the market, according to a bond trader in New York.

Big Tuesday cash inflows to the junk ETFs ($1.17 billion) were a major force driving that bid, the source said.

With the S&P 500 stock index up 0.95%, the Shares iBoxx $ High Yield Corporate Bd (HYG) share price was up 0.61%, or 45 cents, at $74.56.

The closely watched Tenneco Inc. 8% senior secured notes due November 2028 (B1/B) were 83¼ bid at mid-morning in active trading as investors appeared to be playing catch-up, the trader said.

Earlier in the day, those bonds were trading in a context of 82½ bid, 83 offered, sources said.

The notes, which came at 85 on Aug. 15 in a sale to syndicate hung bridge debt from Apollo’s buyout of Tenneco, were seen as low as 81 bid late last week.

The primary market was inactive on Wednesday morning, as it has been since the beginning of the week, and will likely remain that way until Labor Day, sources say.

In the wake of Labor Day holiday weekend, new issue business is expected to ramp up, according to a debt capital markets banker, who said that September could see new issue business in the $8 billion to $10 billion range.

Fund flows

In a reversal of fortunes, the high-yield ETFs saw a whopping $1.17 billion of daily cash inflows on Tuesday, according to market sources.

Those follow a pair of $1 billion-plus daily outflows seen in the past four days.

Actively managed high-yield funds sustained $160 million of outflows on Tuesday, according to the market source.

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