KfW sells five-year bonds; Manitoba plans U.S. dollar deal; bank bonds see spreads tighten

By Aleesia Forni and Andrea Heisinger

New York, Aug. 28 - A drought of new deals continued in the high-grade bond market on Tuesday as German development bank KfW brought an offering.

The Republic of Germany is guaranteeing the $3 billion sale of five-year notes from KfW.

An offering of global debentures was announced by Canada's Province of Manitoba.

Although the last two weeks of August have been low on new deals, it's expected issuance will ramp up in the first week of September at least until headlines out of Europe or other influences quiet things down.

"We're all thinking Europe's going to come back" into the headlines, a source said on Tuesday.

September is shaping up to be a month when some of the plans to save the euro zone have to take formation, which could mean some turbulence in the market.

There was data out that home prices in the United States rose in June, but owing to the lack of deals in the market, there was no immediate impact on the primary, a syndicate source said.

Otherwise, desks are looking ahead to the days following Labor Day.

"We already know that Tuesday and Wednesday are going to be extremely busy," a source said. "Beyond that, who knows?"

In recent issuances, Illinois Tool Works Inc.'s $1.1 billion 3.9% 30-year notes were quoted at 110 basis points bid, 105 bps offered near the end of the session after pricing at 105 bps over Treasuries on Aug. 21.

The $400 million 10-year 5.5% issue from Fidelity National Financial Inc. was seen 20 bps tighter at 355 bps bid, 345 bps offered near the end of the session. The notes priced on Aug. 21 at a spread of Treasuries pus 375 bps.

Existing bonds from bank names including Goldman Sachs Group, Inc., Citigroup Inc. and Bank of America Corp. tightened on the day, according to a market source.

KfW's five-year issue

Germany's KfW priced $3 billion of 0.875% five-year notes (Aaa/AAA/AAA) to yield mid-swaps plus 10 bps, according to a market source and a news release from the issuer.

BNP Paribas, Deutsche Bank AG, London Branch and J.P. Morgan Securities Ltd. were the bookrunners.

The deal from the Frankfurt-based development bank is guaranteed by the Republic of Germany.

Manitoba preps sale

The Province of Manitoba announced plans for a sale of global debentures in a 424B3 filing with the Securities and Exchange Commission.

The bookrunners are CIBC World Markets Corp., HSBC Securities (USA) Inc., National Bank of Canada Financial and Scotia Capital (USA) Inc.

Proceeds are being used for advances to the Manitoba Hydro-Electric Board and/or for general government programs.

The issuer's capital is Winnipeg.

Goldman Sachs firms

In the secondary market, Goldman Sachs' 6.15% bonds due 2018 tightened 12 bps to 277 bps bid on Tuesday.

The bank priced $1.5 billion of the 10-year bonds in April 2008 at Treasuries plus 237.5 bps.

Citi tightens

In other trading, Citigroup's 6.375% notes due 2014 tightened 9 bps to 164 bps bid from Tuesday's levels.

The bank priced $2.5 billion of the five-year notes at Treasuries plus 380 bps on Aug. 5, 2009.

Bank of America tightens

Also in the secondary, Bank of America's 7.375% notes due 2014 firmed 1 bp to 175 bps bid.

The bank priced $3 billion of the notes at Treasuries plus 537.5 bps on May 8, 2009.

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