Morning Commentary: Volatility reigns as ‘safe’ credits slip; ETFs see Thursday outflow

By Paul A. Harris

Portland, Ore., March 6 – Sellers took charge of the European high-yield market prior to the New York open, sources there said.

The closely followed iTraxx Crossover index, comprised of the 75 most liquid sub-investment grade entities, was 63 basis points wider on the day at 386 bps bid, 390 bps offered.

Among euro-denominated speculative grade issues there were “safe” names trading lower on Friday, a source there noted.

The Crown European Holdings SA (Crown Holdings Inc.) 2¼% senior notes due February 2023 were down ¾ of a point, the source said.

Ball Corp.’s 7/8% senior notes due 2024 were down a point.

Elis SA’s 1¾% senior notes due April 2024 were down a point.

The Constantin Investissement 3 SAS (Cerba Healthcare SAS) 5 3/8% senior notes due April 2025 were down ½ point.

Volatility held sway as trading got underway in the United States.

At the New York open, junk was down ½ point as the stock indexes were sustaining drops in the context of 3½%, according to a trader.

However, stocks cut their losses by mid-morning in New York, at which point the Dow Jones industrial average had halved the damage and was trading around 1½% lower.

“Things are all over the place,” a busy New York bond trader said, noting that equities appeared to be rallying back at that time.

However, the Chicago Board Option Exchange Volatility index, or VIX, was still trading above 42, the trader added, prior to jumping to another call.

On Wednesday the VIX was trading in the context of 30.75.

Amid the volatility the dollar-denominated primary market was quiet.

A thin forward calendar features the Del Monte Foods Inc. $575 million offering of seven-year senior secured notes (CCC+).

The San Francisco-based food production company plans to use proceeds from the deal now being shopped in an effort to refinance its capital structure.

Big ETF outflows

High-yield ETFs, which over the past two weeks have seen the junk bond market's fast money gush in and out in historic waves, sustained $1.34 billion of daily outflows on Thursday, a market source said.

Last week the junk ETFs sustained a record $1.87 billion daily outflow on Feb. 25, followed by an outflow of similar magnitude ($1.81 billion) the following day.

Meanwhile actively managed high-yield funds were modestly positive on Thursday, with $30 million of inflows on the day.

News of Thursday’s daily flows followed a Thursday report that the combined high-yield bond funds sustained $5.126 billion of net outflows for the week to March 4, according to Lipper US Fund flows.

It was the biggest weekly outflow since the negative $5.68 billion seen in the week ended March 15, 2017, the market source said.

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