It Doesn't Get Much Worse Than This

The secondary market was a ghost town last week as trades from several desks registered in the single digits and high yield traders had a lot of time on their hands to talk to reporters.

Only there was not much to tell.

There actually has been some cash inflows into most mutual funds, traders said, but most of the new money is sitting in the form of cash instead of being put to work buying junk bonds

"I don't see it out here," one trader said, referring to the lack of buying occurring in the market.

"You can't get much worse than this," said another trader.

Actually there were cash inflows of only $2.5 million for the week ending Sept. 1, according to AMG Data Services, but that came on the heels of a $280 million cash infusion the previous week.

The overall market dropped about two points on the week, one trader said, as did bellwether Level 3 Communications. The telecom company dropped to about 92 from 94 over the course of the week.

Interestingly, ICO Global saw a pop in its bonds of about six points to the low 20s in the wake of its financing problems. It appears that some investors believe there will be a liquidation, in which case the company should fetch more than enough to pay the bondholders par on their investment (HYR 08/30/99, p.1). That's partially because of pre-paid fees for launches that other companies may be interested in buying from ICO.

One satellite analyst outlined a scenario in which the company could get as much as $650 million in an all out liquidation; it owes $544 million if it pays par for the bonds.

Competitive local exchange carrier McLeod also saw an increase of about two points, but that was for a very specific reason: McLeod got a $1 billion cash infusion from a buyout firm (see story on page 1).

Fruit of the Loom's 7% bonds took a big hit last week, dropping to about 49 from the low 60s in secondary trading. And benchmark telecom issuer Nextel Communications' 10.65% notes fell three-quarters of a point to 72, traders said.