Primary, secondary slowdown underway ahead of Labor Day; new issues mixed in secondary market

By Sheri Kasprzak and Aleesia Forni

New York, Aug. 23 - Market sources said Thursday that primary and secondary activity has grown quiet.

"A week and a half before Labor Day weekend, and already we are seeing a difference in primary and secondary market activity," said Jody Lurie, corporate credit analyst with Janney Montgomery Scott LLC.

Northern Natural Gas was one of only two issuers to price debt Wednesday, the other being Caterpillar Financial Services Corp. "Over the past week, we have seen an influx in utilities tapping the market for longer-term debt as a result of the low-rate environment and persistent demand by institutional investors for longer-duration assets," she said.

Lurie said Northern Natural Gas, owed indirectly by Berkshire Hathaway Inc., plans to use the proceeds of its $250 million of 30-year bonds to refinance $300 million of bonds due in October.

"S&P revised its outlook on the company to negative at the end of July on weak gas field fundamentals, which have translated to decreased cash flows."

Northern Natural Gas brought to market 4.1% 30-year bonds at a spread of Treasuries plus 130 basis points.

The Markit CDX Series 18 North American Investment Grade index was 3 basis points wider on Thursday at a spread of 102 bps.

In secondary trading, bank bonds including JPMorgan Chase & Co.'s 6.3% notes due 2019 and Bank of Nova Scotia's 1.8% notes due 2015 tightened 1 bp, while the 6.875% notes due 2018 from Merrill Lynch widened 2 bps.

Meanwhile, the recent issuance from Illinois Tool Works Inc. continued to widen in the secondary, while Fidelity National Financial Inc.'s 5.5% notes due 2022 were seen 18 bps tighter than the original issue price.

Secondary volume drops

Right along with the decreased primary volume, the secondary market's trading levels have plummeted, Lurie reported Thursday.

"In terms of the secondary market, yesterday's [Wednesday's] investment-grade trading levels were almost 19% lower than the average daily volumes, and high yield were more than 20% lower," Lurie said.

"Although the FOMC minutes exaggerated the slowdown, expect the quiet market to persist as we get closer to Labor Day."

Illinois Tool Works widens

The Illinois Tool Works notes due 2042 continued to trade wider at 109 bps bid, 108 bps offered, a trader said on Thursday.

The bonds priced at a spread of Treasuries plus 105 bps on Tuesday and were seen at 107 bps bid later that day.

Based in Glenview, Ill., Illinois Tool Works manufactures industrial products and equipment.

Fidelity firms

In other recent issuances, Fidelity's notes due 2022 were quoted at 357 bps bid, 352 bps offered.

The notes, which also priced on Tuesday, sold at a spread of Treasuries plus 375 bps.

Based in Jacksonville, Fla., Fidelity is a title insurance underwriter.

JPMorgan tighter

The secondary market saw the $3 billion 6.3% issue from JPMorgan due 2019 tighten 1 bp to 115 bps bid.

JPMorgan priced the 10-year bonds on April 16, 2009 at 305 bps over Treasuries.

Scotiabank tightens

Also in the secondary, Bank of Nova Scotia's 1.85% notes due 2015 tightened 1 bp on Tuesday to 42 bps bid, according to a market source.

The bank priced the $1 billion issue at 147 bps over Treasuries in January.

Merrill Lynch widens

Merrill Lynch's 6.875% notes due 2018 widened 2 bps to 309 bps bid near the end of New York's session.

On April 22, 2008, the bank priced $5.5 billion of the 10-year notes at 320 bps over Treasuries.

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