Sour tone leaves primary market dry; secondary focuses on financials, FDIC-backed deals most traded

By Andrea Heisinger

New York, March 6 - The primary high-grade bond market mostly emptied out Friday, with new deals staying away.

Syndicate sources said they are looking ahead to the coming week, which will have issuance based on tone.

The secondary shifted its focus to financial names, taking the spotlight back from industrial new issues that have dominated trading. Names like General Electric Capital Corp. continued to move around on fears of their liquidity.

Spreads were seen generally tighter as Treasury yields were higher late Friday. The 30-year bond's yield was seen up 8 basis points at 3.56%.

Primary empties out

There was nothing in the way of issuance Friday, syndicate sources said, mostly because of the market tone.

The week had a rocky start with the unease about financials and a further bailout of American International Group Inc. GE Capital also had waning confidence through much of the week.

"We thought it would be busy this week," a market source said. "Given the tone, a lot of stuff got put off."

After Monday and Tuesday's respectable volume, issuance dropped off sharply Wednesday and then came to a near halt. This was a change from the weeks since the beginning of the year, which have been continually busy with almost exclusively non-financial issues.

Renewed fears over the health of bank and financial names have slowed issuance. Friday was likely empty of new deals because of these fears and the release of high unemployment numbers for February.

This makes it hard to predict what the coming week will hold, a source said.

"It probably should be busy, but it's all tone permitting," he said.

"We're kind of seeing the same thing as the end of last week where we just wait to see how things go. Hopefully they'll be better. Things were just not all that great today."

GE Capital gives reopening terms

GE Capital released terms for a reopening of a deal backed by the Federal Deposit Insurance Corp.

The funding arm of General Electric reopened its global floating-rate notes to add $140 million.

The notes priced at 100.03 with a coupon of three-month Libor plus 17 basis points.

Total issuance was raised to $340 million, including $200 million sold Feb. 18.

Citigroup Global Markets Inc. was agent for reopened portion of the medium-term notes.

The issuer is based in Fairfield, Conn.

FDIC-backed deals top traded

An issue backed by the Federal Deposit Insurance Corp. from General Electric Capital topped the list of the day's most traded issues early Friday afternoon.

The company's 2.2% notes due 2012 were at the top, with a non-FDIC deal of 6.15% notes due 2018 from Goldman Sachs Group Inc. coming up behind.

An issue of FDIC-backed notes due 2012 priced Tuesday by State Street Corp. was also seen trading at high volume.

Financial sector rocky in trading

The financial side of the secondary market was seen "rocky" late Friday afternoon, a trader in that area said.

There were no major movements either way in GE Capital bonds, he said. The company's outstanding paper has seen ballooning spreads since Monday, with the downfall only tapering off Thursday.

A trader who deals with non-financial names said "the focus has definitely been on the financial side."

"We've been so busy, it's nice taking a little breather," he added, referring to the near monopoly on the primary and secondary by industrial names recently.

"We've been so busy with the new issues it's nice to have a break," he said.

BP Capital mixed in secondary

The new three-tranche issue of notes from BP Capital priced Thursday was seen mixed in trading late Friday, a trader said.

The 3.125% notes due 2012 were the only tranche to tighten, seen at 175 bps bid, 165 bps offered. This was in modestly from the 185 bps price.

The 3.875% notes due 2015 were wider at 220 bps bid, out 10 bps from the 210 bps price and making it the worst-performing tranche.

The 4.75% notes due 2019 were at 204 bps bid, out slightly from the 200 bps price.

Lilly holds gains

The three tranches of notes from Eli Lilly & Co. were seen holding their gains late Friday, with the short bond performing the best.

The 3.55% bonds due 2012 were at 183 bps bid, in nearly 50 bps from their 230 bps price.

The 4.2% notes due 2014 were at 204 bps bid, in solidly from the 237.5 bps price.

The long bond was the worst performing, with the 5.95% due 2037 at 231 bps bid, 225 bps offered from the 240 bps price.

GE Capital, Citigroup big movers

An outstanding 5.3% bond due 2012 from Citigroup Inc. was seen as the day's big mover late Friday, widening more than 80 bps from the previous week's level.

A 5.25% note from GE Capital went the other direction, tightening about 60 bps from the previous week.

Bonds from other financial names were also seen widening, including Goldman Sachs and a unit of JPMorgan Chase & Co.

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