Morning Commentary: Junk chills out after Tuesday rout; ETFs see $575 million outflows

By Paul A. Harris

Portland, Ore., Sept. 14 – After sustaining its biggest daily price decline since mid-June on Tuesday, the high-yield bond market opened unchanged on Wednesday, according to a bond trader in New York.

Trading activity in the early going was muted, the source said.

“There are buyers out there but they're not chasing the market,” the trader said, adding that during Tuesday’s capital markets rout, triggered by a hotter-than-expected August CPI, a notable volume of selling took place in the junk bond market.

With the Dow Jones industrial average up 0.27% at mid-morning on Wednesday, the iShares iBoxx $ High Yield Corporate Bd (HYG) share price was up 0.47%, or 35 cents, at $74.66.

Investors appeared to be taking Wednesday morning’s relatively benign Producer Price Index report in stride, the trader said.

One or two favorable data points will neither halt nor temper the Fed's full-on assault on inflation, the source asserted, forecasting that the Federal Open Market Committee will boost its benchmark Fed Funds rate by another 0.75% when it convenes next week.

The CNX Resources Corp. 7 3/8% senior notes due Jan. 15, 2031 (B1/BB/BB+), the most recent new dollar-denominated issue to clear the market, were unchanged on the morning at 99 3/8 bid, 99¾ offered.

The $500 million issue priced at par on Monday, with dealers reeling in half a percent of rate during the few hours that the drive-by deal was in the market (initial guidance had it coming in the 7¾% area).

The Ford Motor Co. 6.1% senior green notes due August 2032 (Ba2/BB+) were also unchanged on the morning at 96½ bid, 97 offered, said the trader, recounting that late last week those bonds had clawed their way back up into the 98s.

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

There was no fresh primary market news on Wednesday morning as the market continues to eyeball the gargantuan Picard Midco, Inc. $4 billion offering of 6.5-year senior secured notes backing the buyout of Citrix Systems Inc. by Vista Equity Partners and Evergreen Coast Capital Corp, market sources say.

Word in the market holds that there is around $3.2 billion of interest in the Picard/Citrix secured notes which are being discussed with a 6½% coupon at a discount of 88 to 90 to yield in the high-8% to 9% area, sources say.

Pricing is set for Monday.

Meanwhile, in the euro-denominated new issue market, Italy-based multinational gaming company Lottomatica SpA kicked off a €350 million offering of five-year senior secured notes (B2/B) on Tuesday.

Initial guidance has those notes coming to yield in the 10% area, with the deal expected to price later in the present week.

ETFs see Tuesday outflows

High-yield ETFs sustained $575 million of daily cash outflows on Tuesday, according to a market source.

Actively managed high-yield funds were positive on Tuesday, posting $125 million of inflows on the day.

The combined funds are tracking $867 million of net inflows for the week that will conclude with Wednesday’s close, according to the market source.

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