Capital Markets

Junk-Bond Values Climb

The new-issue market is also accelerating.
Ed ZwirnFebruary 18, 2004

Last week’s congressional testimony by Alan Greenspan was music to the ears of the junk bond crowd. His comments, widely interpreted as a promise to continue an accommodative monetary policy, are a major factor behind the latest spike in junk bond values.

“A placid U.S. Federal Reserve chairman Alan Greenspan’s comments to Congress helped boost the high yield bond market during this latest week,” stated Chris Garman, Merrill Lynch’s chief high yield analyst. His testimony “reinforced expectations for patient policy accommodation, and thereby soothed concerns over the future direction of short-term interest rates.”

According to Garman, average non-investment-grade spreads fell last week from 432 basis points to 418. Low-rated airlines, textiles, and consumer products posted strong gains, while high-rated financial, insurance, and utility issues lost a little ground. Cash-pay high-yield now stands at an average 7.28 percent yield to worst, and an average 104-point price.

The new-issue market is also accelerating, he notes, with a total of $4.1 billion is currently in the queue from prospective issuers. The vast bulk of offerings is slated to refinance bank and bond debt; with some LBO and general purpose paper in the mix. Deals in the market include: Buffets Holdings, Calpine Generating, Comstock Resources, Esselte Group, Global Motorsport Group, Invensys, Mrs. Field’s Famous Brands, Overseas Shipholding Group, Pegasus Satellite Communications, Riverside Forest Products, Russel Metals, The Pantry, and UbiquiTel.