Morning Commentary: High yield opens week unchanged; junk ETFs see big Friday inflows

By Paul A. Harris

Portland, Ore., Oct. 24 – The high-yield bond market opened the Oct. 24 week unchanged to perhaps 1/8 of a point better, according to a bond trader in New York.

Volumes were low heading into mid-morning, the trader said, adding that investors will have a plateful of data to digest before the end of the week, with a lot of issuers set to report earnings.

The market also awaits a decision on interest rates from the European Central Bank, which meets Thursday, the source added, saying investors will take any decision as an indication of what lies ahead, as central bankers in the industrialized west carry on their battles with inflation.

With the S&P 500 stock index up 0.43% at mid-morning, the iShares iBoxx $ High Yield Corporate Bd (HYG) share price was essentially flat, up 0.08%, or 6 cents, at $72.43.

The Carnival Corp. 10 3/8% senior priority notes due May 2028 (B2/B+) were wrapped around par on Monday morning, up from Friday's 99 bid, 99½ offered.

The most recent deal to price, the upsized $2.03 billion issue (from $1.25 billion) came at 98.465 to yield 10¾% last Tuesday, playing to strong demand, with reverse inquiry covering over half the original deal size.

Cruise line paper, which came under pressure in the wake of that Carnival deal – with investors feeling compelled to take fresh looks at relative valuations – was seeing price improvement on Monday morning, the trader said.

The Royal Caribbean Cruises Ltd. (RCI Holdings LLC) 8¼% senior secured notes due January 2029 were a point better at 99 bid, 99½ offered, according to a market source.

Meanwhile, there was no fresh news in the new issue market as the week got underway, although investors are heard to have cash to put to work on a calendar, the trader said.

The primary market is open to issuers that have high single B or better credit ratings, coming with middle-of-fairway deals, sources say.

As evidence they point to last week's Carnival deal, asserting that although the price of raising capital by means of issuing speculative-grade bonds has gone up dramatically, market technicals presently favor such an issuer receiving a fair or better execution.

Junk ETFs see inflows

The high-yield ETFs saw a big $1.16 billion amount of daily cash inflows on Friday, according to a market source.

Actively managed high-yield funds were negative on the day, sustaining $50 million of outflows on Friday, the source said.

The combined funds are tracking $1.68 billion of net inflows for the week that will conclude with Wednesday's close, according to the market source.

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