Pre-holiday lull quiets primary, trading; issuers hold off until Monday; Cisco still trading

By Paul Deckelman and Andrea Heisinger

New York, Nov. 25 - The high-grade primary and secondary markets ground to a slow halt on Wednesday ahead of Thursday's Thanksgiving Day holiday break, with the U.S. fixed-income markets closed altogether and limited to just a half-session on Friday. Although Wednesday was ostensibly a full session, many market participants made an early exit as volume levels fell dramatically.

Besides no new-issue activity, traders saw little, if any dealings even in bonds which had priced earlier in the week, such as FMC Corp. and Aegon NV.

But there was still ample trading in the Cisco Systems Inc. bonds which priced earlier in the month, with the San Jose, Calif.-based networking systems company's 10-year and 30 year issues topping the Most Actives list, such as it was.

Among the established issues in the secondary arena on Wednesday, a market source said the CDX Series 13 North American high-grade index was unchanged at a mid bid-asked spread level of 102 bps for a second consecutive session.

Advancing issues topped decliners for a second straight day, holding a nearly 9-to-7 edge.

Spreads in general were seen a bit wider, in line with modest decline in Treasury yields; for instance, the yield on the benchmark 10-year notes fell by 3 bps on Wednesday, to 3.27%

Overall market activity, reflected in dollar-volume totals, plunged by more than 50% versus Tuesday's pace.

A trader said that "absolutely nothing" was going on. "I don't think we even did a trade today."

He said "almost everybody took off early - and I don't even know people are coming in Friday at all."

Another trader said there was "not much to talk about today - everybody went home."

The trader noted that Trace volume for the high-grade market came in around $3.6 billion, "which is extremely light," versus the typical daily volume of between $7 billion and $9 billion which has been "pretty consistent over the past two weeks, almost every day."

The trader further said that while a couple of bid lists came around, "we saw absolutely no interest in them."

Cisco still the secondary star

For yet another day, the only real action seemed to be in Cisco Systems recently priced bonds - and even there, trading levels were seen not much changed day-over-day, although volume levels were impressive.

The second trader noted that Cisco's $2 billion of 5.5% bonds due 2040 were again the most active issue in the high-grade precincts, with some $52 million of that paper changing hands. The bonds were quoted around the 137 bps bid, 130 bps offered area, consistent with recent levels around the 130 bps spread over comparable Treasury issues at which those bonds had priced on Nov. 9 as part of a $5 billion, three-tranche deal.

Number-Two on the Most Actives list was the company's 4.45% notes due 2020, some $2.5 billion of which had priced Nov. 9 at 100 bps over.

In dealings Wednesday, the trader saw the bonds bid at 106 bps and later saw them offered at 100 bps. Some $36 million of the bonds changed hands on Wednesday.

However, the Cisco 2.90% notes due 2014 were nowhere to be found on the actives lists -- but not because of any lack of market interest in the issue, the trader said. Quite the contrary.

Those short bonds, $500 million of which priced at 67 bps over on Nov. 9, were very actively traded earlier in the month, but now, "they've just been put away. The $500 million issue isn't huge by any means, and it looks like a lot of the trades that are going through are retail-sized trades. My guess is dealers bought them, and now they are just putting them out in pieces to retail accounts. It's such a retail-friendly name - everybody knows Cisco, and likes Cisco."

A market source at another desk meantime said that among the more established Cisco bonds, its 4.95% notes due 2019 were trading at 89 bps over, having come in from recent levels around 95 bps.

Its 5.90% bonds due 2039 were about unchanged at 136 bps over on Wednesday.

Fear fallout from Dubai decision

Another trader said that the only news he saw was actually divorced from the high-grade market per se -- the announcement by the government of the Persian Gulf emirate of Dubai saying that Dubai World, its giant development and investment company, plans to delay repayment on billions of dollars of debt, causing Standard & Poor's and Moody's Investors Service to deeply downgrade several government-related entities, some to junk status.

"With over $53 billion in liabilities, that could put a little crimp in the market going forward. It might have some impact" on market psychology, not unlike other major negative credit events of recent years.

Cautious outlook ahead

The trader said that at this point in the year, heading into the final month, "a lot of people are protecting their performance for the year. Probably, until the end of the year, you're not going to see a whole lot going on," explaining that investment managers "who've had good performance for the first three quarters of this year, are not going to let that go away" and blow their chance to put up big numbers for the year as a whole - bouncing back from a horrible 2008 -- by going out on any limbs and taking any chances on anything.

Primary sleeps ahead of holiday

There were no new deals priced on a Wednesday leading into a long holiday weekend.

A syndicate source said that by early afternoon "everyone's thinned out." Desks were being run with skeleton staffs, and much of the work being done was catch up.

"We should be set until Monday," he said.

An issue announced on Tuesday from MF Global Ltd. had reportedly still not priced by late on Wednesday. It was expected to be $250 million of 10-year notes.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.