Distressed bonds firm as Yellen says time is right for rate hike; Peabody, Intelsat continue to rise

By Stephanie N. Rotondo

Seattle, Aug. 26 – There was strength in the distressed debt market on Friday, even though liquidity continued to be thin.

“It’s a sleepy Friday afternoon in the summer,” a trader noted. “I think people weren’t doing anything, waiting to see what [Janet] Yellen said. Then she made her comments and the next thing you know, it’s Friday afternoon and nobody wants to do anything because it’s Friday afternoon.”

The trader further opined that Monday could be the day when the market truly reacts to the Federal Reserve chairman’s comments made from Jackson Hole, Wyo., on Friday.

Speaking from the three-day meeting of central bankers – both foreign and domestic – Yellen said that employment and “price stability” were nearing the levels the Fed wanted to see, thus making a case for another rate increase this year.

“In light of the continued solid performance of the labor market and our outlook for economic activity and inflation, I believe the case for an increase in the federal funds rate has strengthened in recent months,” Yellen said.

However, she did not indicate when such an increase might occur. The Fed has policy meetings scheduled in September, November and December.

While distressed dealings were few, bonds that were moving were trending mostly upward.

For instance, a trader said Peabody Energy Corp.’s unsecured notes – such as the 10% notes due 2022 – continue to creep up.

He placed the issue “around 20.”

Bonds have been moving up since last week, when the bankrupt coal producer said it had reached self-bonding deals with Illinois and three other states.

Intelsat SA was another name that remained firm, with the 7¾% notes due 2021 closing “around 30, 30¼,” according to one trader.

There were, however, a few names that lost ground in end of the week trading.

Oil and gas producer Denbury Resources Inc. saw its 6 3/8% notes due 2021 slip a shade to 74 bid as domestic crude oil also came in a touch.

Linn Energy LLC’s 7¾% notes due 2021 was another energy name that softened slightly, ending at 22¾ bid.

Oil prices were modestly higher earlier in the day, due in part to Yellen’s comments, but also helped by a new report from Baker Hughes that showed active drill rigs were unchanged week over week.

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