Investment-grade activity to pick up at mid-week, J&J oversubscribed; secondary quiet

By Andrea Heisinger and Cristal Cody

New York, Aug. 13 - The high-grade bond market emptied of new issues on Friday following a mostly solid week of deals.

There had been no sales expected for the day, as the primary needed a breather to absorb all of the new paper that's priced recently. There was about $17.7 billion priced throughout the week and about $31 billion the previous week.

The coming week is expected to be moderately busy, with some syndicate desks reporting they have a few trades and others not many at all.

Issuance is not expected to kick into high gear until Tuesday or the middle of the week, sources said.

The secondary market continued to remain weak in tone on Friday after the slew of new corporate bonds sold over the past two weeks, according to sources.

"It's still buyer fatigue on some of the bonds," a source said. "It seems like in the last week or the week before, everything that priced tightened immediately. That didn't seem to be happening recently on a lot of the new deals."

Toyota Motor Credit Corp.'s 1.375% notes due 2013 sold earlier in the week firmed slightly, while Statoil ASA's new debt also edged stronger on the offer side in the secondary market late Friday, according to sources.

Trading volume in the broader high-grade bond market was lower on Friday.

Overall investment-grade Trace volume fell more than 20% to about $11 billion, according to a market source.

"Definitely light flows," a source said. "Today, it's summer, summer syndrome."

The CDX Series 14 North American investment-grade index firmed 1 basis point to a spread of 108 bps, a source said.

Treasuries rallied on the day, sending yields down, on weaker consumer spending data and ahead of the Federal Reserve's plans to buy government bonds starting Tuesday.

The yield on the benchmark 10-year note ended the day 8 bps lower at 2.67%. The yield on the 30-year bond dropped to 3.86% from 3.95%.

J&J deal oversubscribed

The $1.1 billion sale of notes due 2020 and 2040 by Johnson & Johnson that was done late Thursday was a little more than three times oversubscribed, a source close to the trade said Friday.

There was about $3.5 billion on the books between the two tranches, the source said.

"I would say there was about $2 billion on the 10-year, leaving about $1.5 billion on the 30-year," the source said.

About 190 investors showed interest, she said, with about 48% of those money managers and 40% in the insurance sector.

The trade netted record-low coupons for both maturities from the AAA-rated company.

Lower-rated names to price

What the coming week will look like volume-wise is still being fleshed out, a source said at the end of the day, but it will not be a completely dead week ahead.

"We're kind of unsure at this point - we have a couple of trades, maybe five or more," the source from a larger syndicate desk said. "[There's] nothing as junky as what we saw [last week]."

She was referring to the handful of split-rated deals that priced off the high-grade desk.

Issuance isn't expected in earnest until maybe Tuesday or Wednesday, although another source said there's likely to be something small on Monday.

"I would say we'll be fairly active," a source at a smaller desk said, adding that Monday should be quiet. "We have a couple of trades teed up. It should be more mid-week heavy - fairly manageable."

With many higher-rated names getting their deals out of the way after announcing earnings in the past few weeks, there are still some lower-rated and BBB names yet to sell.

"I'm thinking it will be a handful of trades," one source said.

As for the non-stop flood of deals that the high-grade market has seen, the syndicate source said, "I don't know if we [the market] can handle another week like that. I don't know if the desk can handle another week like that."

Toyota Motor Credit firms

Toyota Motor Credit's new high-grade debt the company sold at the start of the week firmed in the secondary market, a trader said Friday.

The company sold $1 billion of the 1.375% notes (Aa2/AA) on Monday at a spread of 62 bps over Treasuries.

"They were offered at 60," the trader said, seeing an early morning quote wider at 62 bps bid, 59 bps offered.

The U.S. financing arm of Toyota Financial Services is based in Torrance, Calif.

Anadarko notes active

Anadarko Petroleum Corp.'s new 6.375% notes due 2017 were seen trading Friday in the secondary market at 99.75, a source said.

The company priced $2 billion of the notes (Ba1/BBB-/BBB-) on Monday at par.

The oil and gas exploration and production company is based in The Woodlands, Texas.

Statoil tighter

Statoil's $2 billion of notes (Aa2/AA-) the company sold in two tranches on Tuesday firmed on the offer side in the secondary market late Friday, according to a trader.

The tranche of 3.125% notes due 2017, which priced at a spread of Treasuries plus 95 bps, was "offered at 85," the trader said.

Statoil's second tranche of 5.1% bonds due 2040 was sold at 115 bps over Treasuries and was last seen offered at 110 bps.

The oil and gas production company is based in Stavanger, Norway.

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