Tone sours on Greece headlines; issuers back away from primary; trading thin; spreads widen

By Andrea Heisinger and Cristal Cody

New York, Sept. 19 - Worries about Greece and the euro zone that surfaced over the weekend brought high-grade bond issuance to a standstill on Monday.

Issuance was expected to be lighter than the previous week's $20 billion of deals with a projected tally of between $10 billion and $15 billion.

That hinges on issuers' and investors' willingness to pay high new issue premiums in return for low borrowing costs and an uncertain market. Despite the previous week's huge supply of deals, there were some problems getting debt from high-profile names, such as Hewlett-Packard Co., sold.

Tuesday's market tone and amount of new deals are expected to be "very similar" to Monday's, a syndicate source said.

"I think it depends on futures, equities, everything, and I don't see that changing much by the open [Tuesday]," the source said.

While there have been some calls with potential issuers, it's "highly unlikely" that anyone is going to price anything in the current environment, another syndicate source said.

"We had a couple of calls, but no one's going to do anything," the source said. "I don't think it's going to turn around in that short [amount] of time."

Trading was light on Monday as the focus stayed on Europe and the upcoming FOMC meeting.

Overall trading volume fell to less than $8 billion from about $10.5 billion on Friday.

The Markit CDX Series 16 North American high-grade index eased 3 basis points to a spread of 128 basis points.

"Low volume," a trader said. "Looks like spreads generally are a bit wider."

Confidence in the financial sector also fell on the day. A trader said that credit default swaps costs to protect bank and broker paper rose.

Fannie Mae's notes reopened on Monday traded in the secondary market at 32.5 bps offered in what was seen as thin trading overall, a source said.

Treasuries rallied on the long end on the fear that Greece may default on its debt, sending investors out of stocks on Monday.

The two-year note yield ended the day down 1 basis point to 0.15% after earlier touching the record low rate of 0.12%. Rates have fallen more than 100 basis points in the last quarter on the benchmark 10-year Treasury note. The 10-year note yield fell another 10 bps to 1.95% on Monday. The 30-year bond yield dropped 9 bps to 3.22%.

CDS costs rise

Bank of America's CDS costs rose 2 bps to 325 bps, 335 bps. Wells Fargo's CDS costs were 5 bps higher at 120 bps, 125 bps.

Brokerage CDS costs also rose. Goldman Sachs' CDS costs rose 5 bps to 228 bps, 238 bps. Merrill Lynch's CDS costs added 10 bps to 370 bps, 393 bps and Morgan Stanley's CDS costs ended the day 13 bps higher at 313 bps, 323 bps.

Paul Deckelman contributed to this review

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