High-grade bonds stand down from primary, coming week seen slower; secondary weak, L-3 wider

By Andrea Heisinger and Cristal Cody

New York, May 21 - The top-heavy week ended Friday with no new deals and a depressed outlook for the coming days.

About $10 billion was priced during the week, including three large sovereign and agency deals. Most of the corporates were well below $1 billion.

Utilities and other similar bonds have come to the market recently because of investor interest, mostly doing shorter maturities. That could continue in the coming week, a source said on Friday.

"I don't think we're going to see any risky [deals]," he said.

Any issues that do get done will likely come in the first couple of days in the coming week leading up to the Memorial Day holiday.

Issuers are not expected to rush into the market in the coming week unless something changes drastically during the weekend, a source said late in the day.

"We still have the oil spill and the [financial] overhaul going on, so who knows," he said. "People aren't really confident right now."

A Senate vote for financial overhaul went through on Thursday, and that and the House version are being combined. It's possible the content could be revised in the coming week.

"It's a mess right now," a source said of the many sources of negativity being thrown at the bond market.

Investment-grade bonds moved out over the week and Friday's trading session was no different, sources told Prospect News.

"Spreads for the week kept widening out," a trader said. "Spreads were wider today. The I.G. 14 is closing flat on the day. Early this morning, I saw it as wide as 7 and it's taken in since then."

The CDX Series 14 North American high-grade index ended the day 3 bps tighter at a mid bid-asked spread level of 120 bps, according to a market source.

Several new offerings sold earlier this week were seen weaker in secondary trading on Friday.

L-3 Communications Corp.'s 4.75% senior notes due 2020 widened a second straight day, while EOG Resources Inc.'s new senior unsecured debt ended weaker, a trader said.

In the financial sector, the high-grade debt from Goldman Sachs Group Inc. spent the day bouncing around in trading, according to sources.

Overall investment-grade Trace volume dipped 7% to less than $10 billion, a market source reported.

"It was pretty quiet today all the way around," a trader said late Friday.

Also on Friday, U.S. Treasuries fell in line with rising stocks, sources said.

Yields on the two-year note eased 4 bps to 0.75%, while yields on the five-year note moved out to 2.02% from 1.98%.

Yields on the 30-year bond were 1 bp weaker at 4.10%.

"Treasuries reversed today, about the same time stocks went positive," a source said. "It looked more like they were trading off stocks. Stocks were down like 100, and Dow closed up 125, so it's a pretty big reversal there. Almost how Treasuries traded just as opposite."

The Dow Jones Industrial Average gained 125.38 points, or 1.25%, to end at 10,193.39.

Overseas debt concerns in Europe seemed to fade slightly after Germany approved a bill to allow the country to contribute to rescue aid for Greece and other nations in the eurozone, pushing yields down.

L-3 wider

Capping the week off, L-3 Communications' new 4.75% senior notes due 2020 continued to widen a second day in secondary trading, a source said.

L-3 Communications priced $800 million of the senior notes at Treasuries 138 bps on Tuesday. The notes were quoted trading later that day at 140 bps bid, 138 bps offered.

"The 10-years were bid at 160 today," the source said. "Yesterday they were quoted at 155, 145. A little wider today."

The weakness likely is attributed to overall spreads "just generally widening out."

EOG moves out

EOG Resources' new $1 billion of senior unsecured debt that the Houston-based oil and gas company sold in two tranches on Monday initially was tighter in the secondary but closed out the week weaker, a trader said.

"Nothing really on them today and not yesterday,' the trader said. "Last I saw on Wednesday, the 10-years were at 97, 92. On the same day, the five-year was offered at 72 bps."

EOG priced the 2.95% notes due 2015 at Treasuries plus 80 bps. The same day the notes had tightened to 75 bps bid, 72 bps offered in secondary trading.

EOG's 4.40% notes due 2020 were sold at Treasuries plus 95 bps. The notes did not move much initially in trading and were seen Tuesday at 95 bps bid, 92 bps offered.

Goldman active

Goldman's 10-year investment-grade debt stayed near the top level of trading activity over the week, sources said.

"They've been bouncing around - 10 wider one day, 10 tighter the next," a trader said. "They're staying around that 280 spread."

Goldman's 5.375% notes due 2020 were seen late Friday at 285 bps over Treasuries.

"I saw them earlier this morning at 290, 280, but there's an actual bid out there at 285," the trader said.

Goldman's 10-year notes traded early Friday stronger at 238 bps as its stock also rose on reports of a potential settlement with the Securities and Exchange Commission to end the investment fraud charges hanging over the New York bank, according to a source.

"Goldman and Morgan Stanley and GE had pretty much the biggest volume all week," the trader said. "Every time I look, Goldman's on top."

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