Morning Commentary: Junk pares post-NFP losses; ETFs see $794 million Thursday inflows

By Paul A. Harris

Portland, Ore., Dec. 2 – After plunging half a point on the heels of a hotter-than-expected non-farm payrolls (NFP) report, high-yield bonds retraced some of their early Friday losses and were down ¼ of a point at mid-morning, traders said.

The high-yield CDX, after plummeting 7/8 of a point upon the release of the NFP, was down 3/8 of a point at mid-morning, the source added.

The Friday report from the U.S. Department of Labor's Bureau of Labor Statistics showed that the employment situation in America remains more robust than expected.

Perhaps the most eye-grabbing figure given was that of month-over-month average hourly earnings, which increased 0.6%, well above forecasters' estimate of 0.3%, and up from September's 0.5%, sources said.

The year-over-year average hourly earnings rate of increase ended November at 5.1%, the report stated.

Among cash bonds, the Neptune BidCo US Inc./Nielsen Holdings plc 9.29% senior secured notes due April 2029 (B2/B/BB) were trading in the context of 96¼ bid, 96¾ offered at mid-morning, down from 97 bid, 97½ offered on Thursday, the trader said.

The $1.96 billion issue, backing the buyout of Nielsen, priced at 92.294 to yield 11% on Nov. 8.

The higher rated Ball Corp. 6 7/8% senior notes due March 2028 (Ba1/BB+) were unchanged at 103 bid, 103½ offered, the trader said, adding that there had been no Friday trades.

“When the NFP hit, bids started down ½ point, then began creeping higher,” the trader said.

The NFP report capped a week of gyrations in the capital markets, all pegged to how high the Fed's fight against inflation will take interest rates, and at what magnitude the anticipated increases will come.

Remarks made Wednesday at the Brookings Institution by Fed chair Jerome Powell, telegraphing a more moderate approach to raising rates (the take-away being that the Fed Funds rate will increase by 50 basis points instead of 75 bps in December, the trader said) sparked a rally in risk assets.

Friday’s NFP report ignited a sell-off, as investors feared that a stronger-than-expected employment report would put a 75 bps December increase back onto the table.

“I don't think that's realistic,” said the trader, noting that thus far the Fed has been remarkably steady and transparent as it combats inflation, and forecasting that December's increase would ultimately be 50 bps.

However, the conspicuous post-Thanksgiving week's gyrations do suggest that the market continues to believe that risk asset valuations are linked to accommodative monetary policies, the trader said.

Fund flows

High-yield ETFs saw a hefty $794 million of daily cash inflows on Thursday, according to a market source.

Actively managed high-yield funds saw negative flows on the day, as they sustained $160 million of outflows on the day, the source said.

News of Thursday's daily flows follows a Thursday report that the combined funds saw $1.712 billion of net outflows during the week to the Wednesday, Nov. 30 close, according to Refinitiv Lipper.

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