Secondary Softer; Funds Bleed Cash

The secondary market last week continued to soften, losing about two points, traders said. And that comes after May turned in arguably the worst monthly performance since October.

One thing that has hurt secondary trading has been the dramatic cash outflows from mutual funds: slightly more than $1 billion in the three-week period ending May 26, according to AMG Data Services. Also hurting the trading levels was an expected increase in defaults, traders said.

Rhythms Net Connections, a digital subscriber line issuer, was trading at par about three weeks ago, and was down to 89.5 last week. Level 3 Communications, which some in the market say is not quite the bellwether it once was, also was down about two points to 96.5.

Beleaguered satellite company Iridium actually saw in increase of about 11 points last week, but still was only in the high 20s. Paging company Arch Communications lost about two to two-and-a-half points to trade at 30, according to traders.

Harnischfeger, which produces mining and paper making equipment, saw one of the most dramatic drops to the 50s from the 80s after disappointing earnings news, investors said.

And in the cyclical chemical sector, Lyondell was trading at par, a loss of a couple points and the lowest level since it priced in May.

CKE Restaurants, which owns Hardee's and Carl's Jr., announced it expected to miss analysts projections for the quarter that ended May 17 and took a dive to 89 from 98 in secondary trading, along with its stock value.

The company said it expects to earn 35 cents to 37 cents per share, instead of the 45 cents estimated by First Call Corp., which compiles estimates of analysts' predictions. (First Call is owned by Thomson Corp., which also publishes High Yield Report.) CKE's stock fell 24% in heavy trading to end at about $13.70 a share.

Just about the only sector that gained last week was the wireless arena (see story on page 1). Advanced Radio Telecom, for example, saw a dramatic hike of about 15 points.

Taking a look at last month's performance left some investors shaking their heads. According to the Bear Stearns high yield index, the market posted a negative 1.76% return; the Merrill Lynch index was slightly kinder, posting a 0.69% loss. And even though either level bested the 10-year Treasury, which posted a negative 1.91% return on the month, it still is not at the year-to-date level of 2.26%, at least in the Bear Stearns index.

In the Bear Stearns index for the month, the finance component, which constitutes less than 3% of the overall mix, posted the best returns at 1.29%. Telecom services, which make up 17% of the index, posted a loss of 4.94%, with the most dramatic drops coming from the paging (-11.16%) and satellite (-10.68%) subsectors.