Morning Commentary: Junk weakens amid volatility as energy continues to drag market lower

By Paul A. Harris

Portland, Ore., Jan. 15 – High-yield bonds were weaker on Friday against a backdrop of plummeting stock prices, according to sources in London and the United States.

With the Dow Jones industrial average off 2.4%, high-yield ETFs were outperforming stocks, but sharply lower, nonetheless.

The iShares iBoxx $ High Yield Corporate Bd (HYG) was down $1.27, or 1.61%, at $77.68 per share heading into mid-morning in New York. The SPDR Barclays High Yield Bond ETF (JNK), at $32.60 per share, was down 54 cents, or 1.63%.

The drag on the capital markets, and on high yield in particular, is an energy story, a portfolio manager asserted, adding that the energy portion of the high-yield index is down 6.3% year to date, after having fallen by 24% in 2015.

The barrel price of West Texas Intermediate crude oil for Feb. 16 delivery was also sharply lower on Friday morning at $29.57, down $1.63 or 5.22% on the day.

Recent issues hold in

Although they were lower with the market, the only two dollar-denominated bonds to be syndicated thus far in 2016 continue to perform quite respectably in the secondary market, sources said.

The Microsemi Corp., Inc. 9 1/8% senior notes due April 15, 2023 (B2/B+) were 103 bid on Friday morning, the portfolio manager said.

Earlier in the week they were seen as high as 104 bid, 105 offered, according to a trader.

The $450 million issue, the first to be syndicated in 2016, priced at par on Jan. 7.

The Pinnacle Foods Inc. 5 7/8% senior notes due Jan. 15, 2024 (B2/B+) were 101 3/8 bid, the manager said.

Earlier in the week they were 101¾ bid, 102¼ offered.

The $350 million issue priced at par on Monday.

Meanwhile the Telecom Italia SpA 3 5/8% senior notes due Jan. 19, 2024 (Ba1/BB+/BBB-) were off half a point with the rest of the market, according to a London-based sellside source.

Those notes priced at mid-swaps plus 305 basis points in a €750 million issue on Wednesday. The reoffer price was 99.632, and the notes yield 3.679%.

Thursday outflows

In the wake of news that dedicated high-yield bond funds sustained big outflows on the week to Wednesday's close of $2.107 billion, daily cash flows remained decidedly negative on Thursday, the portfolio manager said.

High-yield ETFs saw $155 million of outflows on the day.

Actively managed funds saw $305 million of outflows on Thursday.

Dedicated bank loan funds, meanwhile, saw $110 million of outflows on the day.

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