Junk Bond Rebound Lures More Issues to Market

The junk bond market’s strong rebound so far this year lured two higher-quality junk issuers into the fray Tuesday.

Fiber-optic network provider Global Crossing and hospital chain HCA-Healthcare sold a combined $1.5 billion of junk securities, taking advantage of the sharp slide in yields since year’s end.

So far this month, companies have issued more than $10 billion of junk bonds, according to data from Reuters and Thomson Financial Securities Data. That’s more than double the $4.16 billion in junk issued in all of the fourth quarter.

Wall Street suddenly has turned hungry for junk bonds--so called because they are rated below investment grade--as the Federal Reserve has begun to cut interest rates. Investors who had been fearful of recession in 2001--and soaring bond defaults--are much more willing to buy now that they believe the Fed will ride to the economy’s rescue, analysts say.

But “right now, you’re mainly seeing the higher-quality [junk] issues coming to market,” said Mark Durbiano, who invests $5 billion in junk bonds for Federated Investors in Pittsburgh.

Global Crossing’s 6.5-year notes yielded an annualized 8.88%. HCA’s 10-year notes yielded 7.95%. By contrast, the current yield on 10-year U.S. Treasury notes is 5.28%.

Global Crossing’s stock (ticker symbol: GX) rose 75 cents to $24.13 Tuesday on the New York Stock Exchange. HCA’s shares (HCA) rose 34 cents to $36.49 on the NYSE. The companies’ ability to borrow via bonds is giving their shareholders more confidence that they’ll have the capital they need to expand their businesses this year, analysts say.

Martin Fridson, high-yield strategist at Merrill Lynch, said Tuesday that many junk issues still are so depressed that there is strong profit potential in the market.

Even so, he noted that prices of the Global Crossing and HCA bonds fell a bit immediately after traders began trading the bonds. That usually doesn’t happen when a sale is well received.

“Buyers’ panic has been quelled for the moment,” Fridson said. “But that might start up again.”

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Clearer Signals?

Shares of telecom network Global Crossing continued to rebound Tuesday. The company’s sale of $1 billion in junk bonds helped bolster its financial outlook for this year, some traders said.

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Global Crossing shares on the New York Stock Exchange, monthly closes and latest

Tuesday: $24.13, up 75 cents

Source: Bloomberg News