BNY Mellon, Morgan Stanley sell after mixed Q2 earnings results; financials, tech bonds firm

By Andrea Heisinger and Cristal Cody

New York, July 21 - Issuers from the financial sector had a monopoly on the primary market on Thursday as Bank of New York Mellon Corp. and Morgan Stanley sold paper following second-quarter earnings announcements.

Bank of NY Mellon jumped into the market early and ultimately priced $1.6 billion after a $600 million tranche of three-year floating-rate notes was added to the original $1 billion of five-year notes. Both notes priced in line with or at the tight end of price guidance.

The company reported Q2 numbers on Tuesday, which exceeded analyst expectations, marking earnings of $735 million, or 59 cents per share, which was an increase of 12% from a year ago.

Morgan Stanley decided to tap the market later in the morning. Its deal totaled $2 billion, including fixed-rate tranches due 2014 and 2021.

The investment bank announced an earnings loss of $558 million for Q2, or a 38-cent per share loss. Despite the loss, the numbers beat analyst expectations and were mostly attributed to a deal with Mitsubishi UFJ Financial Group during the quarter.

The tone of the market was "not changed" from where it sat at the end of Wednesday, a source said late in the day. More financial names are expected to price bonds as they report earnings.

"The market wants them," a syndicate source said. "I heard away that both of today's [sales] were oversubscribed."

In the secondary market, Morgan Stanley's "new issue is about 12 basis points better," a trader said.

The financial sector "itself is probably 5 to 10 better," the trader said.

International Business Machines Corp.'s five-year note traded 9 bps tighter on Thursday.

Microsoft Corp.'s fourth quarter earnings "just hit the tape" late afternoon, and bonds traded 2 bps to 3 bps better in the telecom and technology sectors, a trader said.

The Markit CDX Series 15 North American investment-grade index improved 2 basis points better to a spread of 92 bps, according to Markit Group Ltd.

Elsewhere in the secondary market, Ingersoll-Rand Global Holding Co. Ltd.'s bonds were active in morning trading.

Overall trading volume slipped about 3% to about $12 billion, but trading was active on the day, sources said.

Treasuries dropped as Europe worked on a bailout plan. The yield on the 10-year note rose 8 basis points to 3.01%. The 30-year bond yield climbed 6 bps to 4.31%.

BNY Mellon reallocates

The Bank of New York Mellon sold $1.6 billion of notes (Aa2/AA-) in two parts after a tranche of floating-rate notes was added prior to the launch, a market source said.

The $600 million of three-year floaters was priced at par to yield Libor plus 27 bps. The notes were sold in line with talk in the Libor plus 27 bps area.

A second tranche was $1 billion of five-year notes priced at Treasuries plus 78 bps. The tranche priced at the tight end of guidance in the 80 bps area.

Bookrunners were Barclays Capital Inc., Goldman Sachs & Co. and RBS Securities Inc.

The financial services company is based in New York City.

Morgan Stanley's $2 billion

Morgan Stanley sold $2 billion of notes (A2/A/A) in two tranches, according to an FWP filing with the Securities and Exchange Commission.

A $500 million tranche of 2.875% three-year notes priced at 99.977.

The second tranche was $1.5 billion of 5.5% 10-year notes priced at 99.97.

Full terms were not available at press time.

Morgan Stanley & Co., Inc. was bookrunner.

The new 5.5% notes due 2021 firmed to 240 bps bid, 238 bps offered in the secondary, a trader said.

The investment bank is based in New York City.

IBM notes tighter

IBM's 1.95% senior notes due 2016 (Aa3/A+/A+) firmed to 56 bps bid, 54 bps offered, a trader said on Thursday.

The company sold $2 billion of the notes at a spread of Treasuries plus 65 bps on Tuesday.

The information technology and computer company is based in Armonk, N.Y.

Ingersoll Rand trading

In other trading, Ingersoll-Rand Global Holding's 6.875% senior notes due 2018 were quoted at 65 bps bid, 55 bps offer "earlier this morning," a trader said.

The company sold the notes in a $750 million offering on Aug. 12, 2008 at a spread of 300 bps over Treasuries.

The company is a subsidiary of Swords, Ireland-based Ingersoll Rand plc.

CDS firms

A trader said that the cost of CDS contracts protecting holders of major bank paper against a possible default tightened substantially today, a sign of renewed investor confidence in the sector:

Banks such as Citi were 10 bps tighter at 138/143 and Wells Fargo 2 bps tighter at 92/97.

Broker Morgan Stanley was seen 13 bps tighter at 166/171, Goldman Sachs' 9 bps tighter at 139/144 and Bank of America Merrill Lynch 8 bps better at 183/188.

Paul Deckelman contributed to this review

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