Morgan Stanley, Citigroup tap primary; Caterpillar bonds falter; Altria gains; long bonds popular

By Andrea Heisinger

New York, Feb. 6 - Investment-grade bond issuance backed by the Federal Deposit Insurance Corp. dominated Friday's market, including a new issue from Morgan Stanley being priced and Citigroup Funding Inc. doing two reopenings.

This was a change from the rest of the week, which had focused on issuance by industrial names.

In the secondary market, the gains continued for most of the week's issues, although the new deal from Caterpillar Financial Services Corp. was seen doing only slightly better than pricing levels. Altria Group Inc. bonds continued to tighten and trade actively.

A new trend is also emerging, with investors favoring long bonds, particularly from high-quality industrial names.

Morgan Stanley sells FDIC notes

Morgan Stanley added another to its issues of notes backed by the FDIC. The bank holding company priced $3 billion of floating-rate notes due 2012 at par to yield three-month Libor plus 28 basis points.

It was a self-led deal.

The notes kept a trend alive of pricing large issues of FDIC-backed notes on a Friday. The issue followed in the footsteps of Citigroup Inc., which sprung a record $12 billion issue of FDIC-backed notes on the market a couple of weeks ago.

Citigroup reopens bonds

Citigroup Funding reopened two issues of FDIC-backed floating-rate notes Friday.

An issue of floaters due April 30, 2012 was reopened to add $1 billion. The notes priced at 100.1058 with a coupon of three-month Libor plus 33 bps.

Citigroup Global Markets Inc ran the books.

Total issuance for the notes is $3.15 billion, including $2.15 billion issued Jan. 30.

The financial concern also reopened its floaters due July 30, 2010 to add $250 million. They priced at 100.0694 with a coupon of three-month Libor plus 10 bps.

Total issuance is $3.25 billion, including $3 billion issued Jan. 30.

Citigroup also ran the books on this issue.

February looking busy

If the first week of the month is any indication, February could outshine January in terms of new deals, a primary source said.

January didn't meet expectation for bond totals, he said, mostly because of several key companies and financial names being in earnings blackout and only now emerging.

"We thought January would be huge, but instead we're kind of seeing the beginning of February as huge," he said.

The source hedged when asked about the amount of bonds coming to the market in the coming week. With a few exceptions, recent new deals have been priced the same day they were announced.

"It's really hard to tell what's going to happen," the source said. "We saw a ton last week and the beginning of this week, so that could be the new trend."

Altria wins day in trading

The three-tranche issue of bonds from Altria Group continued to dominate most of the other issues of the week in terms of moving tighter and in trading volume, a trader said.

A 10.2% bond due 2039 that was part of the issue was seen as the top trader of the day by early afternoon.

The bond was at 590 bps bid, 580 bps offered, in considerably from its 650 bps price on Tuesday. It was also seen tightening 15 bps from Thursday's level.

The 7.75% notes due 2014 were at 465 bps bid, 460 bps offered, which is about 120 bps better than the 587.5 bps price.

The 9.25% notes due 2019 were the least active of the three tranches and were seen at 575 bps bid, 558 bps offered from 637.5 bps pricing.

Caterpillar Financial gains

The three tranches of bonds priced Thursday by Caterpillar Financial Services Corp. were seen only slightly tighter in trading late Friday, a secondary source said.

The 5.75% tranche of notes due 2012 was barely active, the source said, with a level of 422 bps bid, 418 bps offered seen earlier in the day. These notes tightened the most, coming in about 15 bps from the 437.5 bps price.

The 7.15% notes due 2019 were at 420 bps bid, 417 bps offered, in about 5 bps from the 425 bps price.

The 6.125% bonds due 2014 performed similarly and were at 422 bps bid, 420 bps offered.

Novartis bonds rise

The bonds from Novartis AG, which priced in two tranches and via two subsidiaries, were seen continuing to make slight gains in trading, a trader said.

The 4.125% notes due 2014 were at 175 bps bid, 165 bps offered, in from 225 bps pricing.

The 5.125% bonds due 2019 were about 5 bps tighter than Thursday's trading level, seen at 195 bps bid, 185 bps offered from the 225 bps price.

Buying trends reverse

In the midst of the economic meltdown in late 2008, five- and 10-year bonds were by far the most popular with investors. Ten-year tranches or issues were most frequently the most oversubscribed.

That trend has reversed, a trader said Friday, as a long bond from Altria and another from AT&T Inc. sat at or near the top of the day's most-traded notes.

"Everybody wants the long, high-quality industrials," he said. "Everybody just wants industrials."

Energy bonds have been the hot item of the week, with recently priced bonds from ConocoPhillips and Hess Corp. becoming a mainstay on the highest-volume-of-the-day lists.

The trader said "financials haven't tightened up as much as my stuff [non-financials] this week."

He called the popularity of the 30-year bonds a "complete about-face from a couple months ago."

B of A tighter, Citi unchanged

Bank names were again in the news Friday for a variety of reasons.

For Bank of America Corp., news led to a general tightening of its bonds, a trader said.

The bank's notes were seen generally 25 bps tighter, he said.

According to Bloomberg, this came after analyst Richard Bove called the bank a strong buy based on its cash flow and the government aid it has received.

The bank's stocks were also doing well Friday on the endorsement.

Citigroup bonds were not seen moving much, the trader said, despite the financial's preferred stock being downgraded by Fitch Ratings to a BB junk rating from a BBB investment-grade rating.

Caterpillar, Rio Tinto big movers

An old issue from Caterpillar Financial was seen as widening the most Friday, as its new bonds also struggled to gain in trading.

The issuer's 4.25% notes due 2013 were seen more than 90 bps wider from the previous week's level.

Rio Tinto Finance's 5.875% bonds due 2013 were also seen moving about 60 bps, but in instead of out.

The company is reporting earnings in the coming week, and they are expected to show strong cash flow.

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