While stocks sizzle, junk fizzles, many names down multiple points; primary remains stilled

By Paul Deckelman and Paul A. Harris

New York, Aug. 23 - Junk bond participants may have been looking for something to shake their market out of its recent doldrums, but the moderate earthquake that rumbled across the Eastern part of the United States early Tuesday afternoon probably was not exactly what they had in mind.

The earth tremors - centered in northern Virginia and felt as far north as Toronto, as far south as Atlanta and as far west as Chicago and Milwaukee - pretty much disrupted the afternoon, not that there had been all that much going on before that anyway.

Traders saw typically restrained late-summer volume levels, with a decidedly negative bias.

While junk had recently been zigzagging more or less in tandem with equities, on Tuesday, the two markets diverged sharply. Stocks had their first big winning session in a week and their best session in two weeks. In Junkbondland, however, many issues were racking up multiple-point losses, though on no real news.

Among the big losers were such names as education finance company SLM Corp. (Sallie Mae), gaming credits like MGM Resorts International and lender Ally Financial.

Surprising for a day in which most issues were losers, statistical performance indicators managed to turn mixed.

Primary snoozes

The primary market meanwhile remained in a snooze that not even a tremor measuring 5.8 on the Richter Scale could interrupt. Junk failed to benefit from the forces that gave notable life to the stock market.

On-the-run bonds were half a point to a point lower on the day, according to a syndicate source.

Meanwhile, synthetics gained half a point on Tuesday.

The primary market failed to generate news, according to a sellside source, who added that the new issue market may well be shuttered until September.

Not exactly the Big One

Things were already moving along at the snail's pace that is typical of late August in the junk market when at 1:51 p.m. ET the towers of Wall Street, about 300 miles north of the earthquake's epicenter, began to swing and sway for about 15 to 20 seconds, startling financial market participants.

"Things came to virtually to a grinding halt for about 40 minutes after the quake," said a trader - not in the affected area - who noted a severe drop-off in phone calls and message traffic as everyone dropped what they were doing to try to get more information on what had just happened.

"You didn't see one message come across. It was like all that anybody was doing, at least on the East Coast, was talking themselves through the quake."

Another trader - this one on the East Coast - characterized Tuesday's dealings as "a little boring, except for the buildings shaking and stocks loving life."

Equities came out of the chute on Tuesday determined to avoid a repeat of Monday's late fade and actually did post pretty good gains. The bellwether Dow Jones Industrial Average shrugged off the earthquake, which was felt on the trading floor of the New York Stock Exchange, and zoomed 322.11 points, or 2.97%, to end at 11,176.76, its first significant gain since the previous Monday and best finish in two weeks.

A junk trader declared that "I can tell you that our market had no correlation at all with equities." He saw high yield "softer by about a half point." A second trader saw junk do even worse, guestimating it down 2 or 3 points.

At another desk, a trader noted that with the primary market on its usual end-of-August hiatus, "you don't have your usual new-issue pipeline to turn around, and when you do that sorting, you see multiple lists of bonds down 1, 2, 3, 4 points; it's kind of ugly sometimes."

Market indicators turn mixed

Despite the fact that many more issues were down than were up - losing issues led gainers by around a seven-to-four margin - and many of the declining issues showed multiple-point losses, junk market statistical indicators, which were down across the board for a third straight session on Monday, actually managed to claw their way to a mixed finish on Tuesday.

A trader saw the CDX North American Series 16 High Yield index up by 11/16 of a point on Tuesday to close at 92¼ bid, 92½ offered. It lost 9/16 of a point on Monday to close at its low point for the year of 91 11/16 bid, 91 15/16 offered.

But the KDP High Yield Daily index continued to slide, falling by another 47 basis points on Tuesday to end at 71.50. It fell 15 bps on Monday on top of the 29-bps drop on Friday and Thursday's 37-bps swoon. Its yield ballooned out by 17 bps on Tuesday to 8.10% after having risen by 4 bps Monday.

And the Merrill Lynch U.S. High Yield Master II index fell for a fourth straight session on Tuesday, losing a hefty 0.624% on top of Monday's 0.11% downturn. Tuesday's loss lowered the year-to-date return to 1.004% from 1.639% on Monday and left it well below the peak level for the year of 6.362%, set on July 26.

Sallie Mae socked

Among specific names, a trader saw student loan company Sallie Mae's 8% notes due 2020 trading down at 99 bid - well down from their earlier high of 103¾ and down as well from the 103½ level at which the Reston, Va.-based company's issue had traded last week.

He said there were "pretty good-size" dealings in the name, more than $20 million.

He saw no fresh news out on the company that could explain the downturn, chalking it up to the overall weakness of the market.

"Some $20 million of this paper traded," making it one of the busier issues, "so it wasn't some kind of fluke."

He saw the rest of the company's bonds trading "kind of flat to down slightly." However, the 8s "looked like they were down pretty good."

Gaming gets clocked

The trader saw MGM Resort International's 7½% notes due 2016 trading down 4 points on the day at 84½ bid on "some decent volume."

A market source at another desk also saw the Las Vegas-based gaming giant's issue down 4 points at that 84½ level.

Cross-town rival Caesars Entertainment Corp.'s widely traded 10% notes due 2018 were meantime seen gyrating around between a low of 70 and a high of 75 before going home near that high, down just a quarter point on the day, a market source said - although at another desk, those bonds were being quoted late in the day down 3 points at 72 bid.

Another loser from out of that sector - which has been hurt badly by the continued combination of a weak economy, consumer fears of even worse economic news ahead and high gas prices inhibiting road trips to gaming destinations like Vegas, Atlantic City or Biloxi, Miss. - was Boyd Gaming Corp.'s 9 1/8% notes due 2018, down a deuce on the day at 96 bid, while Pinnacle Entertainment Corp.'s 8 5/8% notes due 2017 lost 1½ points to finish at 104½ bid.

However, Wynn Las Vegas bucked the sector trend. Its 7¾% notes due 2020 were seen up a half point at 107½ bid.

And the beat-down goes on ...

McClatchy Co.'s 11½% notes due 2017, which were beaten down by several points last week and which remained on the slide on Monday, retreated another 3 points on Tuesday to 93 bid, 94 offered.

There was no fresh news out on the Sacramento-based publisher of such notable newspapers as the Miami Herald, Kansas City Star, Fort Worth Star-Telegram and Charlotte Observer.

Elsewhere, a trader saw "the ever-popular" Ply Gem Industries Inc.'s 8¼% notes due 2018 down 3½ points at 84 bid, while Bon-Ton Department Stores Inc.'s 10¼% notes due 2014 gave up 2¾ points to end at 88 bid. There was no fresh news out on either Ply Gem, a Cary, N.C.-based building products maker, or Bon-Ton, a York, Pa.-based retailer.

American Axle & Manufacturing Holdings Inc.'s 5¼% notes due 2014 lost 3½ points at 95½ bid, again with no fresh news out on the Detroit-based automotive components company.

A trader said that another Motor City name, Ally Financial, was down about 2 or 3 points on the day, with the lender and financial services company formerly known as GMAC's 8% notes due 2031 down the full 3 points at 90 bid, 91 offered, which he called "pretty representative" of the way Ally's paper in general was moving. "Ally has a lot of issues," he noted.

Another market source called those notes down 3½ points on the session.

Financials flail around

Also among the financial names, a trader saw the distressed bonds of mortgage insurance companies - which were lower on Monday in response to Arizona state regulators' moves against several units of PMI Group Inc. for alleged capital inadequacy - unchanged to slightly higher on Tuesday.

He said that MBIA Inc.'s 14% surplus notes due 2033 were in a 48-51 range, which he called "pretty much unchanged to maybe a little better," up a point.

He saw Radian Group Inc.'s 5 3/8% notes due 2015 at 63 bid, 65 offered, also about a point better, though he cautioned that "they're small deals, so it's hard to tell without actual trading. It's more quoting in these small [issues], then all of a sudden, you'll see a trade. But that one has been in really small pieces trading. So maybe they're feeling a little better."

Away from the financials, a trader said that Catalyst Paper Co.'s 11% senior secured notes due 2016 were trading at 66 bid, 68 offered, which he called 2 points higher, while its 7 3/8% notes due 2014 were "quoted a little better" in a 30-32 range, an improvement of 2 points, "but there really were no trades in that one."

The Richmond, B.C.-based paper manufacturing company's sector peer, NewPage Corp., was "pretty much unchanged," with its 11 3/8% first-lien notes due 2014 at 81 bid, 82 offered.

He also saw the Miamisburg, Ohio-based coated-paper manufacturer's 10% second-lien notes due 2012 staying in the same 12-13 neighborhood seen on Monday, with "small volume" in both.

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