Secondary High Yield Loses Slightly Last Week

The secondary high yield market took a small hit for most of last week, and one active investor said he expects more of the same this week.

Although there was a quarter-point upswing late in the week, overall the market fell almost a point last week in sympathy with the dramatic losses in the stock markets, and since high yield usually lags equities, it was expected to see some more downside this week.

Some of the benchmark names were the ones to see the declines: Level 3 Communications fell a point to 91, while Williams Communications also fell a point to 102.

Revlon's zero coupon bonds fell again last week by about five points, an investor noted, to the mid-to-high teens. Moody's Investors Service cut the rating to Caa3, Caa2 and B2 on the various Revlon issues.

Nextel, the biggest high yield issuer of all with about $9 billion of outstanding junk bonds, saw its stock slide last week about 8% after NextWave denied some of the market speculation that it had agreed to sell its wireless licenses to Nextel.

Nextel has been the center of various market rumors in recent months, and is thought to be a prime candidate for a corporate merger. And in fact, some investors have noted, it's those rumors that keep Nextel's securities flying high.

The other story in secondary trading is the value gained from European tranches, one portfolio manager said.

Over the past few months, the spreads have tightened more on European tranches than on the dollar tranches for the same issues. They initially widened out more than the dollar tranches, but since have tightened more and consequently have returned a higher gain for the investors.

Cable operator UPC, for example, is now at 540 over comparable Treasurys on the euro portion of its recent deal, while it priced at 620 over and at its widest was at 660 over.

The dollar portion of the same deal is at 460 over comparable Treasurys, in from a spread of 500 over when it priced and a high of 550 over the curve.