The high-yield market was still experiencing a lot of demand and little supply, with low quality bonds trading well as investors put cash into the market. Quarterly earnings released last week were generally positive and resulted in moves upward. Here are notable movers.
Lucent Trades Up
Lucent Technologies' 6.45% notes of '29 (Caa1/B-) traded at 88 late Wednesday, up about three points on the week, after its earnings beat estimates. The notes traded at a low of 35 last year and the gain shows the strength of the high-yield market in general, according to one senior trader. The activity last week was sparked by Lucent's earnings report, which indicated a quarterly profit with earnings up $0.03 a share instead of the expected $0.01 a share, after three consecutive years of losses at the company. One portfolio manager noted, however, that he remains "concerned about the amount they are still burning."
Airline Issues Take Off
Bonds of airlines were moderately higher last week, with American Airlines and United Airlines leading the way. American Airlines' unsecured notes traded in the mid to high 80s by Thursday, up a few points on the week. The bump was due to the company's earnings, which came out last week and were better than expected. Jeff Hall, managing director at DebtTraders, a high-yield and distressed markets broker/dealer, says the airline industry benefited from American Airlines' report. "We've seen a lot of strength in the airlines," he noted. The senior classes of United's enhanced equipment trust certificates rose to the low to mid 90s, up two or three points on the week, on the news that the airline renegotiated lease rights.
Drugstore Bonds Heal
Moody's Investors Service upgraded Rite Aid bonds from Caa2 to Caa1 during the week, causing them to trade up a couple points. The 7.7% notes of '27 traded at 98.5, or 313 basis points over Treasuries. A senior high-yield trader at Jefferies & Co. said the gains are indicative of an unprecedented time in high yield. There is "absolutely way too much demand and way too little supply," he notes, adding that if rates and inflation remain low, this kind of performance could continue for the long term.
Parmalat Inches Up
Distressed Parmalat Spa notes traded in the low 20s last week, up from a low of 17.5 earlier in the year. A salesman at Bear Stearns noted more distressed buyers are concentrating on the name and are working out recovery values on bonds of the scandal-ridden dairy company. The consensus among investors has risen from around $0.25 to $0.30 on the dollar. Parmalat's dollar-denominated 6 5/8% notes of '08 traded at 22.5 on Thursday, up from around 17 earlier in the week.