The Glass Is Half Full, Just Don't Spill The Milk
October 1, 2007
You know the story. To escape from the island of Crete and angry King Minos, Daedalus built wings for himself and his son Icarus out of feathers and wax. Daedalus warned Icarus not to fly too close to the sun and melt his wings. But Icarus, in all his excitement, being as he'd never flown before, got careless. He soared too close to the sun, the wax holding his wings together melted, and he fell into the sea and drowned.
Nothing like a good myth to hit you over the head with a moral, huh? But despite the heavy-handedness of ancient storytellers, Daedalus pretty much spoke the truth. Optimism and enthusiasm can lead to great things, but if not tempered with a little caution at certain times, they can also cause you to die.
A number of reasons to be optimistic and enthusiastic about the high yield loan and bond markets have emerged in the last couple of weeks. Deals, especially those of the mid-market variety, have been flowing consistently in both markets. And First Data was by all accounts a resounding success. Reportedly, rather than the original goal of $5 billion, the Credit Suisse-led bank group has received orders for as much as $11 billion. The loans broke for trading Thursday in the 97 area, according to a trader. And all this after bankers had feared, just a few weeks ago, that they might have to sell the debt as low as 92 cents on the dollar.
The secondary markets have also held up well recently. As of the close of the markets Thursday, the LCDX had stayed above 97 since Sept. 19, its longest run at that level since June. And the Merrill Lynch High Yield Master II Index climbed fairly consistently last week. Starting from the previous week's close of 595.060, the index made its way up to start trading Thursday at 597.251.
Is the future so bright we oughta wear shades? Not quite yet, but things are definitely looking up. Though there is still plenty of debt overhang (not to mention persistent rumors of impending layoffs at the debt-laden firms), which means there is still plenty of room for caution.
So here's hoping that those in the position to do so will heed the words of Daedalus, and, as the market begins to take off again, won't fry their wings.
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