Dealers said trading levels have started to stabilize after falling, on average, a quarter-of-a-point a week over the past month. One dealer said trading levels had gotten so low that market participants had started to buy again. Traders had reported more sellers than buyers on many credits, particularly low coupon and covenant-lite deals. "People have started to dip their toes back in. There is decent two-way flow on names," said a dealer.
One buyside trader said he cannot remember the last time so many deals traded under par. "There is very little that is trading over 101," he said. "We're seeing more deals bid under par than we have seen over the last several years. It has been a long time since things have consistently traded down and so close to par."
According to indicative prices from LSTA/LPC Mark-to-Market Pricing data, in June 2006, 40% of U.S.-based facilities priced below par, compared with 27% in June 2005. In January 2006, 26% of U.S.-based facilities were priced below par, compared with 21% in January 2005 and 36% in January 2004.
Buysiders said they were pleased that secondary trading levels have fallen to more rational levels. "Things shouldn't trade at 102," said the buyside trader. "It is an irrational market when things trade so high. We are seeing a correction." One investor agreed, but added that he still does not see many buying opportunities. "Things are not strong buys out there," he said.