Morning Commentary: Junk rallies ½ point after payroll miss; Park Hotels, SS&C bonds up

By Paul A. Harris

Portland, Ore., May 3 – News from the U.S. Bureau of Labor Statistics indicating that labor demand is slowing, which some investors hope might incline the Fed to start paring rates, sent the junk bond market ½ point higher on Friday morning, according to a trader in New York.

While the U.S. unemployment rate remained below 4% for the 27th consecutive month, it ticked up to 3.9% in April, from 3.8% in March, where economists had forecasted it would remain, sources said.

Average hourly earnings also slowed.

And April non-farm payrolls (NFP), at 175,000, fell dramatically short of the 240,000 forecast.

The news, which investors hope will set the stage for possible future interest rate cuts from the Fed’s Federal Open Market Committee, sparked rallies in stocks as well as junk bonds on Friday morning.

With the S&P 500 stock index up 1.04% at mid-morning, the iShares iBoxx $ High Yield Corporate Bd (HYG) share price was 0.48% better, up 37 cents, at $77.13.

Bonds priced Thursday also enjoyed the post-NFP tailwind.

The SS&C Technologies, Inc. 6½% senior notes due June 2032 (Ba3/B+), which were par-lock to start the day, were par ½ bid, par ¾ offered post-NFP, according to the trader.

The $750 million issue priced at par in a Thursday drive-by in a deal that was heard to have launched into the market with reverse inquiry twice the size of the offering.

Elsewhere, the Park Hotels & Resorts (Park Intermediate Holdings LLC/PK Domestic Property LLC/PK Finance Co-Issuer Inc.) 7% senior notes due February 2030 (B1/BB) were 101 bid, 101½ offered, up from par ½ bid, par ¾ offered prior to NFP, the trader said.

Meanwhile, among a flurry of euro- and sterling-denominated issues that priced on Thursday, the Motel One Group (One Hotels GmbH) 7¾% senior secured notes due April 2031 (B3//BB-) were par ¼ bid, par ¾ offered on Friday, a market source in London said.

The €500 million issue came at par, amid a big Thursday burst of speculative-grade issuance totaling €2.13 billion and £2.15 billion.

The primary market remained idle on Friday morning, at which time there were no dollar-denominated issues on the active forward calendar for the week ahead.

However, the trader looks for continued vigor in the investment-grade and high-yield bond new issue markets in the week beginning May 6.

Fund flows

The dedicated high-yield bond funds saw a hefty $669 million of net daily cash inflows on Thursday, according to a market source.

High-yield ETFs saw $568 million of inflows on the day.

Actively managed high-yield funds saw $101 million of inflows on Thursday, the source said.

News of Thursday’s daily cash flows follows a Thursday afternoon report that the combined funds saw $62.5 million of net inflows on the week to the Wednesday, May 1 close.

It was the second consecutive weekly inflow, following the previous week’s $568.4 million inflow, according the market source, who added that the most recent inflow was only the fifth positive weekly cash flow to the asset class in the past 12 weeks.

For April, the junk funds sustained $4.8 billion of net outflows.

Year-to-date cash flows of the dedicated high-yield bond funds ended the most recent reporting week at negative $452 million, according to the market source.

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