Domestic high-yield issuance picked up last month but not enough to convince most observers that the junk bond market has made a full comeback.

Junk bonds typically go up in January, when institutional investors have new allocations for the year. But 1998's record-shattering first half meant that January's $8.2 billion of issuance was only about two-thirds of 1998's monthly average.

Yet the U.S. junk bond market has made a dramatic recovery since August and September, when it virtually shut down due to volatility in the public stock markets.

"We predict that 1999 will look a lot like 1997," another record- breaking year, said Steven Ruggiero, director of high-yield research for Chase Securities.

Indeed, January's issuance edged ahead of the $8 billion of junk bonds that came to market in January 1997. But there may be some cracks in the market's edifice.

"The good deals were oversubscribed, and the bad deals couldn't get done," said Marty Fridson, Merrill Lynch & Co.'s chief high-yield analyst.

Investors are focusing on liquid deals from near-investment-grade companies, preferably with a familiar name, Mr. Fridson said. Smaller, lower-rated issuers are still having a tough time, he said.

At least three potential junk bond issuers either postponed their deals or turned to other sources of financing last month, according to a market source.

Some companies that had planned to issue junk bonds in the near future also have restructured or postponed their deals, the source said.

This may benefit issuers, said Art Penn, BT Alex. Brown's head of global high-yield capital markets.

"The last few weeks have been more of an investors market, with deals coming to market at the high end of price talk," Mr. Penn said. "But the supply is relatively moderate, and that may shift this back to an issuer's market."

A potentially good sign, according to Mr. Penn, is the relatively mild downturn in the high-yield secondary market that followed news of Brazil's economic woes. He contrasted that with the shock waves that Russia's devaluation sent through the market last fall.

"Most high-yield investors have divested most or all of their emerging- markets holdings, so it impacts them less," he said.

Mr. Penn said two large market segments were not as well-represented in January's activity: financial sponsors and start-up telecom companies.

The private equity markets are awash in cash - perhaps leading to less junk bond demand from buyout shops - but it has simply become tougher for more speculative telecom companies to issue high-yield debt, Mr. Penn said.

The broadcast and telecom sector - though still the second- largest, behind manufacturing - saw its market share slip to 17% last month, down from nearly 25% a year ago.

Two outsized deals - the two largest junk bonds issued last month - accounted for a fair portion of activity in the broadcast and telecom sector.

These were $800 million of zero-coupon notes for cellular provider Nextel Partners and $2 billion of notes for Echostar DBS Corp., a radio and TV equipment maker. Both deals were managed by Donaldson, Lufkin & Jenrette.

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