RBC, Rolls-Royce price following IMF growth forecast cut; PepsiCo tightens on earnings

By Aleesia Forni and Cristal Cody

Virginia Beach, Oct. 6 – High-grade bond market primary activity remained slow on Tuesday during another session hampered by concerns over economic expansion, as the International Monetary Fund cut its growth forecasts for both 2015 and 2016.

The IMF revised its projections for global growth to 3.1% from an earlier forecast of 3.3% and predicts growth for the year ahead at 3.6% following an earlier prediction of 3.8%.

In primary happenings, the session saw new deals price from Rolls-Royce plc and Royal Bank of Canada.

Following Friday’s weak employment data, investment-grade primary activity has remained subdued so far, despite what one source called a “significant” pipeline.

A softer market backdrop this week, coupled with earnings blackouts, had kept earlier predictions for supply at around $15 billion, and sources are calling for a light calendar on Wednesday.

“Really depends on the [market] tone,” one source said of possible primary activity in the coming sessions.

PepsiCo Inc.’s 2.75% senior notes due 2025 tightened 10 bps in secondary trading on Tuesday after the company reported better-than-expected third-quarter earnings and raised its profit outlook for the year.

AT&T Inc.’s bonds (/BBB+/A-) were mixed in the secondary market.

The Markit CDX North American Investment Grade 25 index firmed 1 bp to end at a spread of 87 bps on Tuesday.

The index has ranged from a low spread of 60.7 bps to a high spread of 94.8 bps over the past 12 months, according to a Barclays Bank plc report.

RBC covered bond prices

Royal Bank of Canada brought to Tuesday’s primary a $1.75 billion offering of 2.1% five-year covered bonds with a spread of mid-swaps plus 72 bps, a market source said.

Pricing was at 99.967 to yield 2.107%.

The Toronto-based financial services company sold the notes (Aaa//AAA) at the tight end of guidance set in the mid-swaps plus 75 bps area.

Citigroup Global Markets Inc., HSBC Securities, TD Securities and RBC Capital Markets LLC are the bookrunners.

Rolls-Royce debuts

In its debut deal in the high-grade bond market, Rolls-Royce sold $1.5 billion of senior notes (A3/A) on Tuesday in two tranches, a market source said.

Both tranches sold at the tight end of price talk and around 27.5 bps inside initial guidance.

A $500 million tranche of 2.375% five-year notes sold with a 105 bps spread over Treasuries. The issue sold at 99.948 to yield 2.836%.

Also, $1 billion of 3.625% 10-year notes sold at 99.9 to yield 3.637%, or Treasuries plus 160 bps.

BofA Merrill lynch, Citigroup, Goldman Sachs & Co. and J.P. Morgan Securities LLC were the bookrunners.

The London-based company designs, develops, manufactures and services aero, marine and industrial power systems for civil and military aircraft.

Lenders tap market

A duo of issuers took advantage of a lull in corporate bond pricings on Tuesday.

European Investment Bank sold $4 billion of 1.625% five-year global notes (Aaa/AAA) in line with talk at mid-swaps plus 25 bps via bookrunners BofA Merrill Lynch, Citigroup and Goldman Sachs, a market source said.

Meanwhile, Nederlandse Waterschapsbank NV sold $500 million of two-year floating-rate notes (Aaa/AA+) in line with talk to yield Libor plus 12 bps, a market source said.

Citigroup and TD Securities were the bookrunners for the Rule 144A and Regulation S deal.

And in forward calendar news, Inter-American Development Bank set price talk for a planned benchmark offering of five-year notes (Aaa/AAA) in the area of mid-swaps plus 12 bps, according to a market source.

BNP Paribas Securities Corp., JPMorgan and Nomura are the joint bookrunners for the Washington, D.C.-based financing provider’s deal.

PepsiCo better

PepsiCo’s 2.75% notes due 2025 firmed 10 bps during the session to 95 bps bid, according to a market source.

The company sold $1 billion of the notes (A1/A-/A) on April 27 at a spread of Treasuries plus 87 bps.

PepsiCo is a Purchase, N.Y.-based global food and beverage company.

AT&T mixed

AT&T’s 2.45% notes due 2020 headed out in secondary trading about 1 bp softer at 144 bps bid, a market source said.

The notes were quoted at the start of the day 5 bps tighter at 135 bps offered.

AT&T sold $3 billion of the notes on April 23 at Treasuries plus 110 bps.

AT&T’s 3.4% notes due 2025 firmed 8 bps during the session to 180 bps bid.

The company sold $5 billion of the notes on April 23 at 150 bps over Treasuries.

The telecommunications company is based in Dallas.

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