Morning Commentary: Strong jobs report topples junk; ETFs see $1.52 billion outflows

By Paul A. Harris

Portland, Ore., Oct. 6 – After opening unchanged, the junk bond market plummeted in the early going on Friday following a non-farm payrolls (NFP) report indicating that the demand for workers in the United States remains robust, and therefore inflationary, sources said.

The NFP report sent the high-yield index tumbling at least half a point, a hedge fund manager said.

In Europe, the closely followed iTraxx Crossover index, comprised of the 75 most liquid sub-investment-grade euro-denominated entities, widened by 8 basis points in the aftermath of the NFP report, a market source in London said.

As the 10-year Treasury yield climbed 11 bps to 12 bps following the report, cash bonds were down ¼ of a point to 1 point, according to a high-yield syndicate banker in New York.

The LifePoint Health Inc. 11% senior secured notes due October 2030 (B2/B), the most recent issue to clear the market, changed hands at 96½, down ½ point to ¾ of a point on the morning, the banker said.

Those bonds were 98¼ bid, 98 3/8 offered on Wednesday.

The $1.1 billion issue priced at par a week ago.

Even higher quality paper appeared vulnerable to the rate-driven headwinds in credit.

The Ball Corp. 6% senior notes due June 2029 (Ba1/BB+) were 95¾ bid on Friday morning, said the banker, noting that they were 96½ bid to start the week.

The new issue market remained idle, as expected, ahead of the extended Columbus Day holiday weekend, which gets underway following Friday’s close.

The active new issue calendar stood empty heading into the long weekend.

There is likely to be a modicum of new issue activity in the holiday-abbreviated week ahead, the banker said, but added that with risk-free rates on the march, the high-yield primary market may face a chilly autumn.

Fund flows

High-yield ETFs sustained $1.52 billion of daily cash outflows on Thursday, according to a market source.

Those follow the $1.34 billion of outflows that the ETFs saw on Wednesday.

Actively managed high-yield funds posted positive numbers on Thursday, reporting $63 million of inflows on the day.

News of Thursday’s daily cash flows follows a Thursday afternoon report that the combined funds sustained $2.6 billion of net outflows during the week to the Wednesday, Oct. 4 close.

Those follow the previous week’s $2.4 billion outflow, the source recounted, adding that the two weeks combined comprise the biggest back-to-back outflows from the junk bond funds since the week ending Feb. 22, 2023.

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