Mosaic prices two tranches as earnings season, data stifle issuance; financial paper widens

By Andrea Heisinger and Cristal Cody

New York, Oct. 17 - It was a stagnant day in the high-grade bond market on Monday with a lone sale from Mosaic Co.

The agricultural chemical company priced $750 million of notes in 10- and-30-year maturities.

Third-quarter earnings season marches on as Citigroup Inc. followed in the footsteps of JPMorgan Chase & Co. the previous week by releasing its numbers. The banking giant reported Q3 profit of $3.8 billion, or $1.23 per share, which was an increase from the $2.2 billion in earnings from the same quarter a year ago.

This news didn't have much impact on the market that had seen a rally late in the previous week, followed by a couple of quiet days.

"There's not a ton of supply," one market source said. "Could be more tomorrow if [Mosaic] does well."

There have been issuers sitting on the sidelines waiting to hit the bond market for financing, but many are in earnings blackout or have no pressing needs at the moment.

"We're always talking to people, but things can change overnight," a syndicate source said.

Overall trading volume fell to about $9 billion from $11 billion on Friday.

"The rates markets had a pretty sizable rally. Credit [has] lagged a little," a source said on Monday. "Spreads are a little bit wider, mostly on financial names."

The Markit CDX Series 17 North American high-grade index eased 4 basis points to a spread of 134 bps.

Citigroup's notes widened about 10 basis points, and Bank of America Corp.'s notes widened about 5 bps in trading.

Bank and brokerage credit default swaps costs also moved higher on Monday.

In other trading, Hewlett-Packard Co.'s notes continue to firm, a source said.

Treasuries were stronger on a flight to safer haven debt. The benchmark 10-year note yield fell to 2.15% from 2.25%. The 30-year bond yield dropped 10 bps to 3.13%.

Mosaic's two tranches

Mosaic sold $750 million of senior notes (Baa1/BBB/BBB) in two parts, a market source said.

The $450 million of 3.75% 10-year notes priced at a spread of Treasuries plus 170 bps. The notes were sold at the tight end of guidance in the 175 bps area, plus or minus 5 bps, the source said.

A second tranche was $300 million of 4.875% 30-year bonds sold at a 185 bps over Treasuries spread. It also priced at the tight end of talk in the 190 bps area, plus or minus 5 bps.

Bank of America Merrill Lynch, Barclays Capital Inc. and Morgan Stanley & Co. LLC were bookrunners.

Proceeds will be used to redeem subsidiary MOS Holdings, Inc.'s $505 million of 7.625% notes due 2016 that are redeemable beginning in December and for general corporate purposes.

The maker of agricultural chemicals is based in Plymouth, Minn.

Citi widens

Citi's 5.375% notes due 2020 widened 10 bps to 258 bps over Treasuries on Monday, a source said.

The notes were sold on Aug. 2, 2010 at a spread of 255 bps plus Treasuries.

"Citigroup's earnings quality this morning wasn't tremendous," the bond source said.

Citi reported that earnings rose 74% on an accounting gain, beating analysts' expectations.

The financial services company is based in New York City.

Bank of America weakens

In other trading, Bank of America's 5% notes due 2021 widened 4 bps to 5 bps on Monday, according to a bond source.

The financial services company is based in Charlotte, N.C.

CDS costs rise

Bank and brokerage credit default swaps costs rose on Monday, showing less investor confidence in the financial sector, a trader said.

Bank of America's CDS costs rose 22 bps to 355 bps bid, 395 bps offered. Wells Fargo's CDS costs, "the narrowest" of the group, were 13 bps higher at 153 bps bid, 160 bps offered, the trader said.

On the brokerage side, Goldman Sachs' CDS costs eased 25 bps to 360 bps bid, 370 bps offered.

Morgan Stanley's CDS costs rose 30 bps to 410 bps bid, 420 bps offered. Merrill Lynch's CDS costs moved 25 bps higher to 434 bps bid, 455 bps offered.

HP firms

Also in the secondary market, Hewlett-Packard's 4.3% notes due 2021 firmed about 5 bps to 180 bps over Treasuries, a bond source said.

"It's the seventh-most actively traded on the day at $126 million," the source said.

The notes were seen a month ago at 215 bps bid, 205 bps offered, the trader said.

The information technology company is based in Palo Alto, Calif.

Paul Deckelman contributed to this review

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