National Bank of Greece issues, caps week of $16 billion, record May; supply, issuance dip as yields rise

By Andrea Heisinger and Paul Deckelman

Omaha, May 30 - A month of record new issuance came to a close Friday with National Bank of Greece SA bringing an offering of preference shares.

The month had more than $133 billion in new bond issues, making it the largest month on record, a market source said.

The month's issuance was composed of many financial issuers. There was an uptick in regular corporate issuance, a market source said, which was up 50% from the same period last year.

However, in the holiday-shortened week just completed, the pace slowed a little, with new deals totaling $16 billion.

It is a decrease in supply, and not adverse market conditions that are causing issuance totals to wane, a source said.

"It's well timed because the market could use a break," he said.

Reports surfaced Friday saying yields were at their highest levels in two years, causing issuers to back away from the market.

Still, on a historical basis, yields remain low, a source said.

In the investment-grade secondary market Friday, advancing issues led decliners by a three-to-two margin, while overall market activity, reflected in dollar volumes, rose about 13% from Thursday's pace.

Spreads in general were seen unchanged to slightly wider as Treasury yields edged downward, with the yield on the benchmark 10-year issue, for instance, declining by 2 basis points to 4.06%.

National Bank of Greece prices

Friday's issuance consisted mostly of the National Bank of Greece on a flat day when credit was unchanged for the most part.

The bank issued $625 million, or 25 million shares, 9% non-cumulative preference shares at par of $25. The perpetual shares are non-callable for five years.

Merrill Lynch, Pierce, Fenner & Smith Inc., Citigroup Global Markets Inc., Morgan Stanley & Co., Inc. and UBS Investment Bank ran the books.

Terms were also given for a $250 million issue of two-year floating-rate notes from U.S. Bancorp that priced late Thursday.

The notes priced at par to yield three-month Libor plus 40 basis points.

Morgan Stanley and Wachovia Capital Markets were bookrunners.

Looking back over the short week, issues were mostly concentrated on Wednesday.

Those at or over the $1 billion mark included Telecom Italia Capital, International Paper Co., Nucor Corp., Rentenbank, American Express Credit, Republic of Italy and Cox Communications.

Upcoming week seen quiet

The coming week should be relatively quiet, although a source said that could change if supply increases.

New issue premiums are almost back at what they were after the credit turmoil and before the recent rally.

During the last month's rally, premiums were down to 5 to 10 bps, a source said, and now they're back at 20 to 25 bps.

This is still less than what they were during the credit turmoil when they hit 40 bps or more.

The month of June should see less issuance than May, a source said, adding that it won't reach record levels.

Glaxo trades actively

A trader said that there was "a lot of focus" Friday on trading in recently priced deals. He saw GlaxoSmithKline Capital Inc.'s 6 3/8% bonds due 2038 "trading around 179 [bps] early on, but no one would even offer on the 10-years." The big pharmaceutical company priced $2.75 billion of those bonds, along with a companion issue of $2.5 billion of 4.85% notes due 2013 and $2.75 billion of 5.65% notes due 2018 on May 6, all at a spread over Treasuries of 173 bps. It also priced a $1 billion issue of floating-rate notes due 2010 that session, at a coupon of 62.5 bps over Libor.

Another market source, meantime, saw the Glaxo five-years trading at spreads as low as 144 bps.

Philip Morris tightens up

The trader also noted Philip Morris International Inc.'s 4.875% notes due 2013 going out at 172 bps bid, 168 bps offered, well in from their recent levels around 180 bps bid, 175 bps offered. The Switzerland-based global tobacco giant's $2 billion of bonds priced on May 13 at 177 bps over Treasuries, along with companion tranches of $2.5 billion of 5.65% notes due 2018 and $1.5 billion of 6.375% bonds due 2018.

He said that from where he sat, it was "lighter trading, and axe-driven."

Financials seen quiet

Another trader said that the financial sector, meanwhile, was "pretty quiet today. There was no new-issuance to speak of" other than several smallish floating-rate deals.

"In general, I would say that a things were a couple of basis points better," although he added the proviso that "I wouldn't put Lehman [Brothers Holdings Inc.] or CIT [Financial Group] in that category."

Lehman wider, Morgan tightens

At another desk, a market source saw Lehman's 6.875% notes due 2018 quoted bid at 329 bps over Treasuries; the Wall Street brokerage had priced $2.5 billion of the bonds at 320 bps over on April 17.

Perhaps the most busily traded bond of the session, the source indicated, was JP Morgan Chase & Co.'s 6.40% bonds due 2038, which were seen at 173 bps over on Friday; the banking giant priced $2.5 billion of the bonds at 195 bps off Treasuries on May 16.

CDS spreads keep tightening up

A trader said that debt-protection costs for big banks and major brokerages continued to tighten Friday, reflecting investors' more hopeful view about those sectors.

He saw the banks' credit-default swaps tightening anywhere from 1 bp to 6 bps, while the brokerage houses were again anywhere from 1 bp to 17 bps narrower on the session for a second straight session.

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