Bank earnings take center stage, primary mostly unaffected, but little supply; spreads tighten

By Andrea Heisinger and Paul Deckelman

New York, Oct. 15 - The new issue market for high-grade bonds emptied on Thursday after two strong days of issuance.

The void was not necessarily due to conflicting earnings announcements in the morning from two of the biggest banking names, a syndicate source said.

"I think we just ran out of supply," he said. "There was pretty heavy issuance on Tuesday and Wednesday."

Most of the week's deals were performing well in the secondary market, he said, particularly those from Tuesday, the day which had the highest volume of deals.

Among the established issues in the secondary arena on Thursday, a market source said the CDX Series 13 North American high-grade index was 1 basis point wider versus Wednesday's level, at a mid bid-asked spread level of 97 bps.

Advancing issues remained behind decliners by around a five-to-four margin for a second straight session.

Overall market activity, reflected in dollar-volume totals, rose almost 2% from Wednesday's pace.

Spreads in general were seen tighter, in line with higher Treasury yields; for instance, the yield on the benchmark 10-year note widened by 5 bps on Thursday to 3.41%

Bank earnings top day

Two of the largest banking names reported mixed earnings early in the session, but it did not seem to have much of an impact on the high-grade bond market, sources said.

"I think we were pretty much unchanged [from Wednesday] to a little weaker," a syndicate source said. "It's always hard to tell with no issues."

He added that a secondary "bid list put pressure on the market." Meanwhile the credit markets saw a slight boost from the rise in the Dow Jones Industrial Average, he said.

Citigroup Inc. reported a loss, but its third quarter was "better than expected," the source said.

And Goldman Sachs & Co. announced a profit of $3.19 billion, and "knocked the cover off the ball," he said.

There is nothing set to price on Friday, although it's possible that JPMorgan Chase & Co., Citigroup or Goldman could sell bonds now that they have come out of earnings blackout, a source said.

Other than that, issuance is expected to remain slow for the coming week.

"This week was an off week anyway, with having Monday off," the syndicate source said. "There was still a lot of supply."

Many of the deals, notably the four-tranche offering priced by Anheuser-Busch Cos. Inc., were tighter by a respectable margin in secondary trading. The brewer's longest bond was in by more than 25 basis points, with the others tightening between 10 and 15 bps, he said.

Bank of America Corp. announces its earnings on Friday, and could also possibly sell bonds.

"I would think they would wait until next week [to issue]," a source said.

Citi, Goldman slightly wider

Citigroup Inc.'s 's paper was "a little weaker," a trader said, "maybe 5 bps at the most, nothing really dramatic," following the New York-based banking giant's release of third-quarter numbers.

Unlike J.P. Morgan Chase & Co. - whose earnings for the quarter, released on Wednesday, were absolutely spectacular - Citi's were considerably less so. While it did show a $101 million net gain for the quarter excluding special items, including those charges and other items left it with a loss to stockholders of 27 cents a share, or $3.2 billion. That compares with a loss of 61 cents a share, or $2.9 billion, in the third quarter a year ago.

The trader meantime noted that another big financial name, Goldman Sachs Group Inc., released better than expected earnings, "but I guess the bar was set so high by J.P. Morgan" that investors were left unimpressed. He quoted Goldman's 7½% notes due 2019 as trading around 193 bps bid, 185 bps offered, a little wider than the 185 bps level seen earlier in the day.

Another trader agreed that there was "no great shakes" in Citi's bonds, or Goldman's, in the face of the quarterly numbers. "They were a couple of bps wider."

Earlier, "Citi was all over the place," as investors tried to figure out whether the earnings represented progress - a smaller operating loss than last year - or a deterioration. "The earnings were mixed, and there was a knee-jerk reaction."

Citi's 8½% notes due 2019 - its most active issue - "were tighter earlier in the day," narrowing to about 310 bps bid, 308 bps offered, around the same level as Wednesday, before finishing out at around 315 bps over.

A market source saw the Citi issue as the day's most actively traded high grade credit, with over $80 million traded at mid-afternoon.

The biggest mover among the Citi bonds, on a spread basis, acting pretty much the exception to the rule, was its 5% notes due 2014, quoted at one desk as having widened out nearly 30 bps to around the 385 bps area.

But another market source agreed that Citi's bonds were little moved, relatively speaking, by the numbers, seeing its 4.125% notes due 2010 perhaps 5 bps wider at 85 bps over Libor.

The source also saw Citi's 5.30% notes due 2012 10 bps wider at 285 bps over.

And he saw Goldman's bonds modestly firmer, with its 5.625% notes due 2017 6 bps tighter on the day at just over 200 bps, and its 6.25% 2017s 8 bps tighter at 185 bps over.

RBS trades tighter

A trader saw Royal Bank of Scotland's new $1.5 billion of 6.40% notes due 2019 at 287 bps bid, 284 bps offered. That was in from the 300 bps over level at which the company's paper priced on Wednesday.

However, another recently priced financial, Cantor Fitzgerald, was seen little changed from issue, with a trader quoting it at 455 bps bid, 445 bps offered, versus the 455 bps over level at which its $500 million of bonds, upsized from $250 million originally, priced on Wednesday.

New York life seen tighter

A trader said that "finally" New York Life Global Funding's $500 million offering of 2.25% notes due 2012 made an appearance in the secondary market, after there having been "no flow since they priced them."

The trader saw the New York-based insurer's bonds in an 85 bps bid, 80 bps offered context, versus the 93 bps level at which those bonds priced on Tuesday.

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