Morning Commentary: Junk opens weaker in thin, pre-holiday trading; Abengoa bonds plunge

By Paul A. Harris

Portland, Ore., Sept. 4 – Cash bonds were 1/8 to ¼ point weaker trailing a Friday non-farm payrolls report that showed that the increase in the number of new jobs in August came in well below the low end of economists’ expectations, according to a trader in New York.

Volumes were light and liquidity was extremely thin heading into the extended Labor Day holiday weekend in the United States, which gets underway following Friday’s close, the source added.

The iShares Trust - iShares iBoxx $ High Yield Corporate Bond ETF (HYG) was trading at $86.01, down 4 cents, heading into midday on the East Coast. The SPDR Series Trust - SPDR Barclays High Yield Bond ETF (JNK) was unchanged on the session at $36.85 per share.

In addition to disappointing job growth numbers, the U.S. Labor Department’s Friday report contained a 5.1% unemployment figure, down from 5.3% in July.

However a lot of the movement in that percentage reflects shrinkage in the labor force, as opposed to hiring, the trader said.

There was a time not long ago when disappointing economic numbers sparked rallying in the capital markets on the perception that the central bank would remain accommodative because of the weakness, the trader reflected.

That dynamic, however, did not appear to be in play following Friday’s non-farm payroll report.

Abengoa bonds dive

The bonds of Spain-based renewable energy company Abengoa SA took a sharp dive on Friday on news that the company has retained Lazard Ltd. in an advisory capacity ahead of a possible share sale.

Abengoa bonds, which had actually shown strength in recent days, were down between 10 points and 20 points on Friday, the trader said.

The Abengoa dollar-denominated 8 7/8% notes due 2017 traded on Friday at 40, according to a trader, who added that the last previous real trades were in the context of 68 to 69.

Although Abengoa’s stated purpose for retaining Lazard is to raise capital, investors are apprehensive that the company might also be seeking counsel on a possible restructuring, the trader remarked.

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