Morning Commentary: Junk slips in heavy trading; HY ETFs see $536 million outflows

By Paul A. Harris

Portland, Ore., Feb. 15 – An overall heaviness had hold of the high-yield bond market at mid-morning on Wednesday, according to a trader in New York.

At that time the junk index was down 3/8 of a point, while cash bonds were generically ¼ point lower on the morning, the trader said.

The high-yield ETFs were sellers, the source added, specifying that traders were plowing through stacks of bids-wanted-in-competition (BWICs).

With the Dow Jones industrial average down 0.69% at mid-morning, the iShares iBoxx $ High Yield Corporate Bd (HYG) share price was down 0.51%, or 38 cents, at $74.61.

Economic data continued to foil investors hoping that indications of a slowing economy might render the Fed more cautious in its fight against inflation, as the markets scan the horizon for a point at which the central bank might pause or halt interest rate increases.

On Wednesday, the Empire State index showed a higher-than-expected 3% increase in January sales.

That trails a hotter-than-expected CPI report on Tuesday.

So, the evidence that recessionary forces are taking hold of the U.S. economy – an eventuality that investors hope might moderate the Fed – is scant indeed, according to market sources.

Bonds priced late last week by Hanesbrands Inc., the 9% senior notes due February 2031 (B1/BB-), were unchanged on the morning at 101½ bid, 102 offered, the trader said.

The $600 million deal, which priced last Friday at par, was a blowout, playing to reverse inquiry in excess of the offering size, according to market sources.

Prior to the New York open, junk was rallying in Europe, according to a market source there.

The Telecom Italia/TIM SpA 6 7/8% senior bullet notes due 2028 (B1) were 102½ bid, 103 offered, up ½ point to as much as 1 point.

The €850 million issue priced at par on Jan. 20.

The new issue market continued to be quiet on Wednesday, as it has been since the beginning of the week.

The only deal that may still be in play is the Skill BidCo ApS €725 million to €750 million offering of five-year senior secured floating-rate notes (B/B+), talked earlier in the week at Euribor plus 675 basis points to 700 bps at an original issue discount of 98.

Prior to that talk, the market had anticipated a tranche of fixed-rate dollar-denominated notes in the deal, backing the buyout of Denmark-based Scan Global Logistics by CVC Capital Partners.

Fund flows

High-yield ETFs sustained a hefty $536 million of daily cash outflows on Tuesday, according to a market source.

Actively managed high-yield funds saw slight inflows of $13 million on the day, the source added.

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