Issuers hold off awaiting Fed rate cut, Rentenbank announces new deal; financials soften from early gains

By Andrea Heisinger and Paul Deckelman

Omaha, Jan. 30 - There was little in the way of new investment-grade issues Wednesday as investors and traders awaited the Federal Reserve rate-cut announcement.

The Fed announced its cut of 50 bps in the afternoon, but too late for any deals to be launched and priced.

It did, however, provide a boost to the market.

"I think we saw things reversed, like the Dow and credit had a late day reversal," a market source said.

In the investment-grade secondary market Wednesday, declining issues once again narrowly shaded advancers, while overall activity, reflected in dollar value, eased about 9% from Tuesday's elevated levels.

Financial issues were firm for much of the day, including recently priced deals from Bear Stearns and Merrill Lynch, but softened a little late in the day on investor worries about monoline bond insuers such as MBIA Inc. and Ambac Financial Group Inc.

Credit-default swap spreads on major bank and brokerage paper widened out a little from tighter, earlier levels.

Rentenbank plans deal

An upcoming issue was announced from Germany's Rentenbank.

The country's agency for agriculture is set to price $1 billion in five-year global notes this week with proceeds going to finance lending activities.

Bookrunners are Credit Suisse Securities LLC, J.P. Morgan Securities Inc. and RBC Capital Markets.

More upcoming issues also surfaced in recent teleconferences and slide presentations.

SunTrust announced earlier this week it is evaluating the capital markets and may issue securities during the first quarter of the year.

The deal would form part of the company's plans to grow revenue by selling capital markets products in the corporate, middle market and commercial segments.

Suncor Energy Inc. also announced it will likely finance its capital expenditures through the debt markets but was not specific as to when.

The company has a capital budget of $7.5 billion for 2008 that includes growth and sustainability.

It's also launching the $20.6 billion Voyageur Project to increase production.

Low rates seen drawing issues

Wednesday's Fed cut was not a surprise, sources said.

By early afternoon the 10-year Treasury note was at 3.73%.

"It's under 4% and nobody really expected that to happen," a source said. "You should see a decent amount of people coming into the market tomorrow."

With the exception of Rentenbank, issuers did not announce any issues after the rate cut announcement, which was also not a surprise.

"We thought someone might put something in the market, but no one was going to price anything," a source said.

"Unless it's something that's going to take two, three days to get done it doesn't happen."

The relative stability combined with the rate cut should urge issuers into the market Thursday.

"I think we're going to see a lot of go, no-go calls in the morning," a source said.

Another source predicted a couple of deals for Thursday and little to none for Friday.

New Bear, Merrill issues tighten

A trader said that the new Bear Stearns 7.25% notes due 2018 - which priced Tuesday at a spread of 362.5 basis points over comparable Treasury issues, and then late Tuesday narrowed to a 350 bps bid, 348 bps offered context, widened back out in Wednesday's dealings to around the 360 bps level before going home at 358 bps bid, 356 bps offered .

He saw Merrill Lynch's new five-year bonds - which had priced Tuesday at 262.5 bps - was "basically wrapped around 255/254 bps the whole day, maybe a little bit tighter, or a little bit wider here or there. But it didn't do much."

He said that after the break, "it performed well, but kind of just held its ground after the rate cut."

Monolines throw a damper on the market

After the announcement of the 50 bps reduction in the key rates, which had been widely anticipated, "we saw things get a little firmer out there, but then there was some talk about MBIA and Ambac, which weakened the market in general. I guess people feel that if they're going to have problems, it's going to flow through to the rest of the financial sector across the board, so that weakened the sector."

MBIA's 14% surplus notes due 2032, which had priced at par on Jan. 11, have been bouncing crazily around ever since then on investor concerns about the prospects for bond-insurers like MBIA and rival Ambac. Those bonds - nominally investment-grade instruments now trading off the junk desks at some shops - had fallen as low as around 70 around mid-month on investor worries about the monolines, but had recently come back up to around the 93 bid, 94 offered level.

However, on Wednesday, they dropped to 85 bid, 90 offered, hurt by the news that Fitch Ratings had downgraded sector peer FGIC, while hedge fund manager Bill Ackerman said MBIA and Ambac will likely lose $11.6 billion from their exposure to mortgage-related -well above the firms' forecasts.

CDS costs widen a little

Another trader said that major bank debt-protection costs "kind of widened out little bit [from tighter levels earlier] to being unchanged." He saw CDS costs for major brokerages about 2 bps to 4 bps wider on the day.

"It was pretty much a 'sell the fact' type of situation," after the widely anticipated Fed rate cut was announced, "plus late in the day, around 3 p.m. [ET], they hit the market with these monoline downgrades, which put a lot of pressure on the financials for the last hour of trading."

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