Morning Commentary: Junk market sags after Powell comments; funds see Monday inflows

By Paul A. Harris

Portland, Ore., March 7 – After opening unchanged on Tuesday, cash bonds slid ¼ of a point as Fed chairman Jerome Powell told the Senate Banking Committee that the central bank could come with rate increases of greater magnitude in the Fed's fight against inflation and that the terminal rate might end up being higher than the markets have been anticipating, sources said.

With the Dow Jones industrial average down 0.75% at mid-morning, the iShares iBoxx $ High Yield Corporate Bd (HYG) share price was down 0.39%, or 29 cents, at $74.43.

In special situations, the bonds of Ritchie Bros. Auctioneers Inc. and IAA Inc. were unchanged on news that the Ritchie Bros. board offered IAA shareholders a $1.08 per share special dividend as an enticement to vote in favor of the planned merger, a trader said.

That enticement comes in the wake of a Monday recommendation from proxy advisory firms Institutional Shareholder Services and Glass Lewis that IAA shareholders should reject the merger.

The Ritchie Bros. 6¾% senior secured notes due 2028 (Ba2/BB+) were par ½ bid, 101 offered at mid-morning, the trader said.

The Ritchie 7¾% senior notes due 2031 (B1/BB-) were par ½ bid, 101¼ offered.

Both were unchanged on news of the special dividend offer as well as on news of Powell's testimony in Congress, the trader said.

The bonds priced last Wednesday – $550 million of the secured notes and $800 million of unsecured notes – at par, in support of the acquisition and also to help refinance the Ritchie Bros. 5 3/8% senior notes due 2025 and help fund a $120 million special dividend.

Meanwhile the IAA SpinCo Inc. 5½% notes due 2027 were 98 bid, 98¼ offered, also unchanged on the dividend news and the Fed news, the trader said.

IAA shareholders are set to vote on the merger on March 14.

Away from that situation, junk traders had not yet seen activity in the bonds of Nissan Motor Co., Ltd. following news that S&P Global Ratings cut Nissan's corporate credit ratings to BB+ from BBB-.

When Nissan's bonds begin to appear in Junkland, they will likely be traded on the crossover desk, a trader said.

The primary market failed to generate news on Tuesday morning.

Had Powell's testimony before Congress not been so dire, the new issue market might have reactivated, particularly in light of the fact that the J.P. Morgan Global High Yield & Leveraged Finance Conference – which has been known in the past for generating a JPMorgan left books deal or two – is presently underway in Miami, a source said.

In the wake of Powell's Tuesday testimony, things are apt to go quiet in the primary market for a while, they added.

Fund flows

The dedicated high-yield bond funds saw $412 million of net daily cash inflows on Monday, according to a market source.

High-yield ETFs saw $372 million of inflows on the day.

Actively managed high-yield funds saw $40 million of inflows on Monday, the source said.

The combined funds are tracking $232 million of net outflows on the week that will conclude with Wednesday’s close, according to the market source.

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