High-grade issuers shy away from primary on economic fears; Dow Chemical notes widen

By Aleesia Forni and Andrea Heisinger

New York, Nov. 7 - Issuers were scarce in the high-grade bond market on Wednesday following the election of president Barack Obama to a second term the night before.

Although a syndicate source had expressed optimism early on Tuesday that companies would want to sell bonds if there was a decision, instead there was some wariness of what's ahead, such as the so-called fiscal cliff toward the end of 2012.

Equities were unsettled at the top of the day due to the uncertainty and some economic news out of Europe.

"There are just a lot of unknowns, but we could be back to business tomorrow or Friday, or it could be next week," a market source said late Wednesday.

"The tone was just not great today. People sat on the sidelines," he added.

Dow Chemical Co. gave terms of its $2.5 billion sale of bonds split evenly between 10-year and 30-year maturities.

A split-rated sale of $300 million in 10-year notes was priced off the high-yield syndicate desk by Land O'Lakes, Inc.

The Markit CDX Series 18 North American Investment Grade index widened 4 to a spread of 100 basis points on Wednesday.

The secondary market saw Citigroup's 8.5% notes due 2019 close the session 6 bps tighter.

In other bank paper, notes from Goldman Sachs due 2037 and Morgan Stanley due 2019 widened from levels seen Monday.

Both tranches of Dow Chemical's deal were also quoted wider during the session.

Investment-grade bank and brokerage credit default swaps costs rose on Wednesday.

Banks were wider. Bank of America's CDS costs widened 9 bps to 161 bps bid, 166 bps offered. Citi's CDS costs also rose 9 bps to 155 bps bid, 160 bps offered. J.P. Morgan's CDS costs widened 2 bps to 104 bps bid, 109 bps offered. Wells Fargo's CDS costs rose 3 bps to 82 bps bid, 87 bps offered.

Brokers were wider. Merrill Lynch's CDS costs widened 10 bps to 152 bps bid, 162 bps offered. Morgan Stanley's CDS costs rose 13 bps to 220 bps bid, 225 bps offered. Goldman Sachs' CDS costs were 6 bps wider at 182 bps bid, 187 bps offered.

Dow Chemical gives terms

Dow Chemical gave terms of its $2.5 billion sale of notes (Baa3/BBB/BBB) in two maturities priced on Tuesday, an informed source said..

A $1.25 billion tranche of 3% 10-year notes sold at a spread of Treasuries plus 145 bps.

There was also $1.25 billion of 4.375% 30-year bonds priced at a spread of 160 bps over Treasuries.

A trader saw the 10-year notes 7 bps wider at 152 bps bid, 149 bps offered on Wednesday.

Meanwhile, the 30-year bonds traded at 169 bps bid, 166 bps offered during the session.

Bookrunners were Goldman Sachs & Co., HSBC Securities (USA) Inc., J.P. Morgan Securities LLC and SMBC Nikko.

Proceeds are being used to repay or refinance debt or other obligations and for general corporate purposes.

Dow was last in the market with a $2 billion sale of bonds in two parts on Nov. 4, 2011. That offering included 4.125% 10-year notes priced at 215 basis points over Treasuries and 5.25% 30-year bonds sold at 220 bps over Treasuries.

The specialty chemical company is based in Midland, Mich.

Land O' Lakes' crossovers

Land O'Lakes priced an upsized $300 million split-rated issue of non-callable 10-year senior notes (Ba2/BBB-/) at par to yield 6%, according to a syndicate source.

The yield printed on top of the yield talk.

Bank of America Merrill Lynch was the bookrunner for the deal which was upsized from $250 million.

The Arden Hills, Minn.-based branded food and agriculture supply cooperative plans to use the proceeds to pay down its revolving credit facility.

Goldman Sachs widens

In the secondary market, Goldman Sachs' 30-year bond due 2037 closed the session at 332 bps bid, 5 bps wider from Monday's levels.

Goldman priced the $2.5 billion 6.75% bond at 190 bps over Treasuries in September 2007.

Citi firms

Citigroup's 8.5% 10-year notes tightened 6 bps to 119 bps bid from levels seen at the start of the week.

The bank priced $1 billion notes due 2019 at Treasuries plus 437.5 bps on June 11, 2009.

Morgan Stanley widens

The market also saw Morgan Stanley's 7.3% notes due 2019 trade 5 bps wider compared to levels seen Monday at 225 bps bid.

Morgan Stanley priced $1 billion of the notes at 360 bps over Treasuries in May 2009.

Paul A. Harris contributed to this review

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