Distressed bonds rise, Fed releases minutes, oil prices dive; Peabody stays firm; FMG comes in

By Stephanie N. Rotondo

Phoenix, April 8 – The distressed debt market was moving up with the broader markets on Wednesday.

The market was buoyed by the release of the Federal Reserve’s minutes from its March meeting. Investors were once again looking for clues from the central bank as to how the economy is really doing and also how that will impact when the Fed plans to raise interest rates. The mid-afternoon release of the minutes showed that the Fed was divided on whether or not to go ahead with a June rate increase, with some indicating that despite a poor first quarter, recent economic data should not deter the June plan.

Others, however, were a little more weary of the first quarter’s performance and some even went so far as to suggest taking a meeting-by-meeting approach to raising rates, rather than setting out a somewhat definitive timeline.

The bad news of the day was that oil prices tanked, nearly erasing all of the week’s gains.

West Texas Intermediate crude dropped $3.02, or 5.59%, to $50.96 per barrel. Brent crude declined $3.04, or 5.14%, to $56.06.

The losses came on the heels of the latest government report that showed U.S. crude stockpiles growing by 10.95 million barrels last week – three times more than expected.

Additionally, stockpiles in Cushing, Okla., also rose more than expected, adding 1.2 million barrels.

Despite the stemmed oil rally, oil and gas names continued to gain ground.

A market source said Linn Energy LLC’s 7¾% notes due 2021 improved by nearly 2 points, closing at 84¼ bid. Seismic data provider CGG SA meantime saw its 6½% notes due 2021 closing a point better at 81½ bid.

Elsewhere in the commodity space, coal producer Peabody Energy Corp. “kept creeping up,” a trader said. He said the 10% notes due 2022 closed half a point to a point higher, placing them north of 90.

Another market source deemed the 6½% notes due 2020 nearly 2 points better at 64¾ bid.

Peabody got a sizeable boost on Tuesday as Christian Zann, a partner and portfolio manager at Balyasny Asset Management, deemed the company a value play in a CNBC interview.

Meanwhile, iron ore company FMG Resources was firm for most of the day, according to a trader. But late in the session, paper started to drift off.

The trader said the 8¼% notes due 2019 were trading around 83, but settled back to 81 by day’s end.

Away from commodities, a trader said Getty Images Inc.’s 7% notes due 2020 “remained active,” adding “another point” in Wednesday trading to close at 54.

“They are up about 3 points in two days,” he said.

There has been no fresh news to act as a catalyst.

Big moves for Fannie, Freddie

Fannie Mae and Freddie Mac preferred stock was getting a boost after the New York Times reported that Iowan senator Charles Grassley had written letters to the Justice Department and the Treasury, asking why the government chose to consign the bulk of the agencies’ profits – and why information on that decision has yet to see the light of day.

In response, Fannie and Freddie paper “all popped about 20 cents,” according to a trader.

Fannie’s 8.25% series S fixed-to-floating rate noncumulative preferreds (OTCBB: FNMAS) were ended up a quarter, or 5.94%, at $4.46. Freddie’s 8.375% fixed-to-floating rate noncumulative perpetual preferreds (OTCBB: FMCKJ) finished 29 cents, or 6.89%, better at $4.50.

Shareholders have filed several lawsuits against the government over its 2012 decision to take the majority of Fannie and Freddie’s profits as the agencies continue to operate under conservatorship. In the course of those lawsuits, certain documents have been requested from the government, but each request has gone unanswered. In some cases, the government has even claimed presidential privilege.

In particular, shareholders are looking for documents relating to the 2012 decision, but thus far, none have come.

In his letter, Sen. Grassley also expressed questions about the decision and asserted that taxpayers have “a right to know what has transpired.

“But, instead of transparency, there appears to be an invocation of executive privilege. If true, this is cause for concern,” Grassley wrote in his letter.

© 2015 Prospect News.
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