Morning Commentary: Junk advances on heels of middling jobs report; outflows continue

By Paul A. Harris

Portland, Ore., Sept. 2 – Investors searching for signs that inflationary pressures on the U.S. economy might be easing appeared to derive solace from Friday's release of the U.S. non-farm payroll numbers for August, sources said.

As the markets staged for the extended Labor Day holiday weekend – the traditional summer-fall divide in the bond market – junk was up ¼ point to ½ point at mid-morning on Friday, according to a trader in the New York area.

Offers-wanted-in-competition (OWICs) outnumber bids-wanted-in-competition (BWICs) 10-to-1 on the heels of the jobs report, the trader said.

With the S&P 500 stock index up a hefty 1.2% at mid-morning, the iShares iBoxx $ High Yield Corporate Bd (HYG) share price was posting a solid 0.91% advance to $75.04, up 68 cents.

An increase in labor force participation moved the August unemployment rate to 3.7%, up from 3.5% in July, according to Friday's report from the U.S. Bureau of Labor Statistics.

The report likely does not nudge the needle one way or the other in the calculations of the interest rate-setting Federal Open Market Committee, which is expected to deliver another 75 basis points increase to its benchmark Fed Funds rate when it meets in September, the trader said.

Trading activity was muted ahead of the holiday, according to the trader.

The Ford Motor Co. 6.1% senior green notes due August 2032 (Ba2/BB+), which saw significant price erosion throughout the rocky pre-Labor Day week, were up around ¼ point on Friday morning at 97½ bid, 97¾ offered in somewhat active trading, the source said.

Those bonds were 96½ bid, 97½ offered on Thursday morning.

A week ago, they were 99½ bid.

The Ford green bonds came at par on Aug. 16 in a $1.75 billion high-grade-style execution.

The primary market was idle on Friday morning, capping a week which saw no junk-rated, dollar-denominated issuance.

A less-than-massive post-Labor Day deal pipeline is thought to be in place, market sources say.

The Tellurian Inc. $1 billion notes/warrants project financing deal, which kicked off earlier this week, is expected to price during the week ahead.

And the market anticipates post-Labor Day launches of conspicuous acquisition financing deals from Citrix Systems Inc. and Tenneco Inc. (Pegasus Merger Co.) deals that had initially been slated as summer business.

However, how soon after the holiday those offerings might kick off remains to be announced.

Thursday outflows

The dedicated high-yield bond funds sustained $804 million of daily net outflows on Thursday, according to a market source.

High-yield ETFs saw $695 million of outflows on the day.

Actively managed high-yield funds sustained $109 million of outflows on Thursday, the source said.

News of Thursday’s daily flows trails a Thursday afternoon report that the combined funds saw a massive $5.04 billion of net outflows in the week to the Wednesday, Aug. 31 close, according to a report from Refinitiv Lipper.

That extended a two-week run of outflows to $9.6 billion, the largest seen in a two-week interval since March 2020 when global news headlines were firmly in the talons of the then-developing coronavirus pandemic, the market source said.

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