Issuers stand down ahead of Fed meeting; HP, Rio Tinto bonds trade tighter; financials mixed

By Andrea Heisinger and Cristal Cody

New York, Sept. 20 - Companies shied away from selling investment-grade bonds for the second day in a row on Tuesday as euro zone fears continued to plague headlines and the marked chewed over President Barack Obama's deficit-reduction plan.

Terms were announced for a sale done Monday by John Deere Capital Corp. The $310 million of floating-rate paper is the only bond sale for the week so far.

As was the case at the top of the week, concerns about Greece defaulting on its debt and employing austerity measures in return for more bailout money from the European Union weighed on the market tone. There was also the news Monday that Italy's credit rating had been downgraded one notch to A by Standard & Poor's.

Issuance for the remainder of the week depends on what announcements come out of the Federal Reserve's Federal Open Market Committee meeting on Wednesday, a syndicate source said.

"It's dependent on that FOMC meeting," the source said. "Who knows if they'll announce anything. The last few have been pretty blank."

If no bad news comes out of that, issuers could be ready to jump into the market on Thursday, the source said.

"People want to issue, but they just aren't going to [now]."

Overall trading volume rose to about $12 billion on Tuesday from $8 billion, but activity seemed light over the day, traders said.

The Markit CDX Series 16 North American Investment Grade index eased 6 basis points to a spread of 134 bps.

"Trading flows are light," one trader said.

Hewlett-Packard Co.'s notes were among the names seen trading better on the day, and the company's long bonds have come in about 14 bps since issuance, a trader said.

"The new Hewlett-Packard bonds are still trading pretty well," the trader said.

Rio Tinto Finance (USA) Ltd.'s notes also traded tighter.

Financial paper was seen as a "mixed bag" on Tuesday, a trader said.

"JPMorgan [Chase & Co.] was probably wider by 5 [bps], and Goldman [Sachs Group, Inc.]'s better by 5," the trader said.

Credit default swaps costs were lower, though, indicating increased investor confidence in the financial sector, a source said.

Bank of America Corp.'s CDS costs fell 5 bps to 320 bps bid, 335 bps offered. JPMorgan's CDS costs dipped 1 bp to 126 bps bid, 131 bps offered.

Brokerage CDS costs also were lower on the day. Merrill Lynch's CDS costs fell 5 bps to 305 bps bid, 320 bps offered. Morgan Stanley's CDS costs declined 5 bps to 305 bps bid, 320 bps offered. Goldman Sachs' CDS costs were seen unchanged at 225 bps bid, 240 bps offered.

Treasuries ended the day flat to moderately better. The benchmark 10-year Treasury note yield fell 2 bps to 1.93%. The 30-year bond yield declined 2 bps to 3.2% from 3.22%.

John Deere's floaters

John Deere Capital sold $310 million of three-year medium-term floating-rate notes (A2/A) at par to yield Libor plus 53 bps, according to an FWP filing with the Securities and Exchange Commission.

Deutsche Bank Securities Inc. was the bookrunner.

The financing arm of heavy equipment maker Deere & Co. is based in Reno, Nev.

HP firms

Hewlett-Packard's bonds traded stronger on Tuesday, a trader said.

The company sold $4.5 billion of global notes (A2/A/A+) in five tranches on Sept. 13.

The $1 billion of 4.375% notes due 2021 traded on Tuesday at 228 bps bid, 224 bps offered, about 1 bp to 2 bps better on the day. The notes priced at a spread of 240 bps over Treasuries.

The other tranche, $1.2 billion of 6% 30-year bonds sold at Treasuries plus 270 bps, also traded about 1 bp to 2 bps tighter on the day. The bonds were seen going out at 256 bps bid, 251 bps offered, much stronger than where they priced.

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

Rio Tinto tightens

Other bonds trading stronger on Tuesday included the recent deal from Rio Tinto Finance, which sold $2 billion sale of guaranteed senior bonds (A3/A-/A-) on Sept. 14.

The $500 million tranche of 2.25% notes due 2016 traded at 135 bps bid, 130 bps offered, about 2 bps better on the day, a trader said.

The company sold the notes at a spread of Treasuries plus 148 bps.

Rio Tinto Finance is the financing arm of Rio Tinto plc, a mining company based in London.

Paul Deckelman contributed to this review

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