Morning Commentary: Robust jobs numbers chill market; junk ETFs see $1.6 billion inflows

By Paul A. Harris

Portland, Ore., Feb. 3 – After opening the Friday session 1/8 of a point lower, the high-yield bond market slipped further following a report that the U.S. economy added 517,000 jobs in January, vastly exceeding the economists' forecasts of 188,000, sources said.

That suggests the demand for workers continues to vastly exceed the supply, putting upward pressure on wages, and implying that the Fed's fight against inflation is nowhere near over, sources say.

With the S&P 500 stock index off 0.28% at mid-morning, the iShares iBoxx $ High Yield Corporate Bd (HYG) share price was down 0.6%, or 46 cents, at $76.74.

Bonds priced in a Thursday megadeal from Uniti Group continued to trade at a significant premium to their new issue price on Friday morning but were ½ point off their highs, according to a high-yield portfolio manager.

The investor spotted the new Uniti Group LP, Uniti Fiber Holdings Inc., Uniti Group Finance 2019 Inc., CSL Capital, LLC 10½% senior secured notes due February 2028 (B2/B/BB+) at 101¼ bid, 101½ offered.

The upsized $2.6 billion issue (from $1.7 billion) priced at par in a blowout that came on accelerated timing, sources said.

The big debt refinancing deal was heard to have generated $7 billion of demand.

The primary market remained quiet on Friday morning, and the active new issue calendar was empty approaching the weekend.

However, a decent shadow calendar is taking shape, sources say.

U.K.-based chemical company Ineos Group Holdings is expected to show up with secured notes in the week ahead, according to a market source.

The deal is expected to feature dollar-denominated notes, according to the portfolio manager.

The company set a Friday lender call to launch a new U.S. term loan B and a fungible add-on euro term loan B.

All told, Ineos seeks to raise €2 billion equivalent between the loans and the expected secured notes.

ETFs see inflows

The high-yield ETFs saw a whopping $1.6 billion of daily cash inflows on Thursday, according to a market source.

That's the biggest daily inflow to the ETFs since the record $2.547 billion inflow reported on Nov. 10, 2022, a bond trader said.

Meantime actively managed high-yield funds had negative cash flows on Thursday, sustaining $82 million of outflows on the day, according to the market source.

News of Thursday’s daily flows trails a Thursday afternoon report that the combined funds sustained $1.5 billion of net outflows for the week that concluded with the Wednesday, Feb. 1 close, according to Refinitiv Lipper.

It was the second consecutive weekly outflow topping the $1 billion mark, representing a total of negative $2.8 billion for the two-week period, according to the market source.

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