JPMorgan deal follows settlement, BAA prices 10-year; financials firm, hybrid bank paper dips

By Andrea Heisinger and Cristal Cody

New York, June 22 - JPMorgan Chase & Co. and BAA Funding Ltd. sold bonds in the high-grade market on Wednesday after the conclusion of a two-day Federal Reserve Federal Open Market Committee meeting.

The issue of five-year notes from JPMorgan totaled $2.5 billion. The sale came a day after headlines that the banking giant had been ordered by the Securities and Exchange Commission to pay $153.6 million in a settlement with investors who bought complex mortgage-related bonds.

"I hear they had a lot of reverse demand," a source said. "We expected them to do $1.5 billion, so there was probably a lot of interest in that."

Another deal came from London-based airport operator BAA. The company priced $1 billion of 10-year notes - likely enticed into the U.S. debt market because of low borrowing rates, a source said.

The market tone wasn't much changed from the previous day when the Fed meeting began. No big changes were expected, and none were announced although chairman Ben Bernanke's outlook for U.S. economic growth was more pessimistic than previously. No new program of quantitative easing was announced and the current program will come to an end following a round of Treasury security buying in the coming week.

"Things felt OK," a syndicate source said after the close, talking about whether the market tone had changed since Tuesday.

"It's not great, but OK. I think it's going to continue to be quiet on the new issue front but we're hoping then things will build up and we'll see some again."

Financials remained among the most active sector in the secondary market on Wednesday, while the market overall still remains "kinda quiet," one trader said. "It's pretty muted."

Overall trading volume dipped less than 10% to about $13 billion.

The Markit CDX Series 15 North American investment-grade index eased 1 bp to a spread of 97 bps, according to Markit Group Ltd.

JPMorgan's new notes tightened in the secondary market along with other bank and financial paper, according to traders.

Goldman Sachs Group Inc. "tightened up and was steady in trading," one source said. Other financial paper, such as hybrid debt from Bank of America Corp., fell in the secondary market.

In other trading, Coventry Health Care Inc.'s split-rated 10-year notes have narrowed since they priced earlier in the month.

Treasuries ended mostly unchanged from the lack of surprise from the Fed announcement. The 10-year Treasury note yield was flat at 2.98%, while the 30-year bond yield rose 1 basis point to 4.22%.

JPMorgan sells $2.5 billion

In the wake of a settlement with investors the previous day, JPMorgan Chase priced $2.5 billion of 3.15% five-year notes (Aa3/A+/AA-) to yield 165 bps over Treasuries, said a source away from the sale.

J.P. Morgan Securities LLC was bookrunner.

Proceeds are being used for general corporate purposes.

JPMorgan last sold five-year notes in a $3 billion sale on Feb. 17. Those 3.45% notes sold at Treasuries plus 120 bps.

"I think they maybe had to raise money and with borrowing rates so low decided to do a lot more than needed," the sources said.

JPMorgan's notes firmed in secondary trading. Soon after pricing the notes traded at 164 bps bid, 162 bps offered, according to traders.

The financial services company is based in New York City.

BAA Funding's 10-year

Airport operator BAA Funding sold $1 billion of 4.875% 10-year senior secured notes (/A-) to yield Treasuries plus 200 bps, an informed source said.

Talk was whispered in the low 200 bps area, the source said. The notes later priced in line with revised guidance in the 200 bps area.

"We've been on the road for the past week just kind of feeling it out," the source said.

The sale was talked at benchmark size, or a minimum of $500 million, and was able to rise to $1 billion on demand, he added.

The notes were sold under Rule 144A.

Bookrunners were Citigroup Global Markets Inc., RBS Securities Inc., BBVA Securities Inc. and BNP Paribas Securities Corp.

Proceeds are being used to repay the existing debt of subsidiaries under BAA Ltd.

The bond insurer for BAA - operator of six British airports - is based in London.

Goldman tighter, hybrids drop

New York-based Goldman Sachs' 3.625% notes due 2016 "have held in pretty well," a trader said.

The notes were seen trading at 180 bps bid, 175 bps offered.

"Liquid financial names have been moving pretty nicely," the trader said. "Illiquid ones have lagged. Hybrids haven't recovered the losses they've incurred in the last couple of weeks."

For example, Charlotte, N.C.-based Bank of America's 5.63% perpetual maturity notes had been "trading in the 78 range," the trader said. The perpetual notes traded late Wednesday in the 73-74 range.

Coventry Health Care stronger

Coventry Health Care's 5.45% notes due 2021 traded at 207 bps bid, 202 bps offered, according to a source.

The company sold $600 million of the notes (Ba1/BBB-/BBB-) on June 2 at a spread of 245 bps over Treasuries.

The managed healthcare company is based in Bethesda, Md.

CDS costs rise

A trader who watches the credit default-swaps market said that "the banks took a beating today" as the cost of protecting the holders of their bonds against potential events of default rose sharply, indicating lessened investor confidence in the sector.

He said that the CDS costs for bank paper rose by between 7 basis points and 9 bps - and for investment bank paper, were 9 bps to 14 bps wider. He saw CDS costs for both Merrill Lynch and Morgan Stanley paper 14 bps wider, at 180 bps bid, 183 bps offered for Merrill and 175 bps bid, 180 bps offered for Morgan Stanley. And he saw the CDS costs for Goldman Sachs paper 9 bps higher, at 148 bps bid, 152 bps offered.

Paul Deckelman contributed to this review

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