Market tone gets late-day boost; issuers wait on sidelines; Morgan Stanley, Goldman weaker

By Andrea Heisinger and Cristal Cody

New York, Oct. 4 - Headlines and a lack of deals on Tuesday cemented the fact that few issuers are willing to touch the high-grade primary market at the moment.

Federal Reserve chairman Ben Bernanke commented before a Congressional committee and said that the Fed can't do everything to correct a floundering U.S. economy. He also said that the Fed hasn't exhausted all of its options.

By the end of the day, the Dow Jones industrial average was up 153 points. A source said that "in 15 minutes it all turned around."

There were comments from a European Union official saying that the member countries need to act now to halt the sovereign debt crisis, the source said, which may have caused the turnaround.

This news could be a boon to the bond market on Wednesday.

"If futures are up [Wednesday], people are going to tell them [issuers] to go," a syndicate source said.

There were "six, seven, eight" calls done with potential issuers on Tuesday, the source said.

"People definitely want to go, it's just a matter of timing. If this holds overnight, tomorrow could be a crazy day."

Overall trading volume jumped to more than $13 billion from about $9.4 billion the previous day.

In the secondary market, Morgan Stanley's paper widened about 100 basis points on Tuesday after trading more than 50 bps weaker the previous day, a bond source said.

The financial sector overall was wider, along with Goldman Sachs Group, Inc.'s paper.

Goldman Sachs' notes fell in trading after the company announced it will cut its global growth forecasts for this year and 2012.

Goldman Sachs' 7.5% notes due 2021 widened to 460 bps from 422 bps on Monday, a source said.

The Markit CDX Series 17 North American Investment Grade index firmed 3 bps to a spread of 147 bps.

Treasuries ended lower on the long end of the curve on Tuesday as stocks edged up late in the day. The 10-year note yield climbed 7 bps to 1.82%, and the 30-year bond yield ended 6 bps higher at 2.8%.

Morgan Stanley trades wider

Morgan Stanley's paper widened in the secondary market a second day on Tuesday, a bond source said.

The bank's 5.5% notes due 2021 widened to 624 bps in the early afternoon from 525 bps bid, 500 bps offered on Monday, a bond source said. The notes were quoted on Friday at 460 bps.

Also in trading, Morgan Stanley's 5.625% notes due 2019 (A2/A) widened to 645 bps over Treasuries from 530 bps on Monday, another bond source said.

The bank's longer-dated paper also moved out over the day. The 7.25% bonds due 2032 (A2/A) widened to 557 bps over Treasuries from 428 bps, the source said.

The investment bank is based in New York.

CDS costs up

Bank and brokerage credit default swaps costs moved higher across the board on Tuesday.

On the bank side, Bank of America Corp.'s CDS costs rose 10 bps to 460 bps bid, 480 bps offered. JPMorgan Chase & Co.'s CDS costs were 10 bps higher at 185 bps bid, 195 bps offered.

Brokerage investment bank CDS costs were higher on the day. Goldman Sachs' CDS costs widened 25 bps to 415 bps bid, 435 bps offered. Merrill Lynch's CDS costs eased 15 bps to 510 bps bid, 540 bps offered. Morgan Stanley's CDS costs were flat at 550 bps bid, 570 bps offered.

Paul Deckelman contributed to this review

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