American Water Capital sells small deal; week sees $7.5 billion; Citi widens as financials dominate

By Andrea Heisinger

New York, Nov. 21 - A small new issue from American Water Capital Corp. capped off a volatile week in the investment-grade bond market that ended on a sour note.

Friday marked a return to worries about financial names, with Citigroup Inc. talking about a merger.

The secondary was mostly focused on the financial world, a trader said, with little activity in the industrial and other non-financial sectors.

American Water taps market

American Water Capital priced $75 million of 10% senior monthly notes Friday. The notes priced at 96.85 and are non-callable for five years.

Edward D. Jones & Co. ran the books.

Week nets $7.5 billion

The week ended with more than $7.5 billion in new issues, which was a downturn from the previous week's $9 billion.

Many of this week's deals were small and from utilities. The largest issue came from Verizon Wireless, which priced $3.5 billion in five- and 10-year tranches.

Short week eyed for issues

The coming week is a short one ahead of the Thanksgiving holiday, but there could be a window Monday and Tuesday for some companies to come into the market.

"It's the same thing we've been saying all week," a source said. "People need to price things, and they're running out of time."

A good chunk of the backlog has been priced in the last two weeks, but there is still more out there, a source said earlier in the week.

It is all industrial and utility names, with the financial world largely sitting out on bond issuance.

"Who knows what will happen next week," a source said. "The tone was pretty crappy today, but that could all change by Monday. We could still see some issuance then, just because people need to go."

Citi news dominates day

News that Citigroup may be considering a merger dominated headlines and trading in the investment-grade market.

A secondary trader who deals with industrial names said the focus was on the financial sector of the market.

"The majority of the concentration was in the bank and finance sectors," he said. "It's pretty quiet on my end."

As a result of the dismal headlines, "everything was generally weaker" in trading, he said.

Citi bonds wider

Citigroup bonds were seen generically about 15 basis points to 20 bps wider in late afternoon trading, a source said.

The financial concern's credit-default swaps were also wider, by about 50 bps, a trader said.

They were seen at 470 bps bid, 500 bps offered.

Verizon bonds widen

Tuesday's two-tranche issue from Verizon Wireless was seen wider Friday afternoon, a trader said.

The 7.375% notes due 2013 were weaker at 585 bps bid, 575 bps offered, while the 8.5% notes due 2018 were wider at 559 bps bid, 555 bps offered.

The five-year notes priced at 537.5 bps while the 10-year tranche priced at 512.5 bps, meaning they each were about 50 bps wider.

Bank, broker CDS wider

Bank and broker CDS were all seen generically wider late Friday afternoon, a trader said.

Bank CDS were 10 bps to 50 bps wider, with Citigroup at the wide end of the range.

Broker CDS were seen from 20 bps to 30 bps wider.

Goldman Sachs was seen 20 bps wider at 385 bps bid, 405 bps offered.

Morgan Stanley was about 25 bps wider at 525 bps bid, 545 bps offered.

Merrill Lynch was about 30 bps wider at 280 bps bid, 300 bps offered.

Citi tops trading

Citigroup's 8.4% perpetual securities were seen at the top of trading early Friday afternoon.

The most-traded list was largely dominated by financial names like Citi, Wells Fargo & Co. and JPMorgan Chase & Co., whose 7.9% perpetual was seen second in trading.

GE tops big movers

Both General Electric Co. and General Electric Capital Corp. were seen as the day's big movers by late afternoon Friday.

GE Capital's 5% bonds due 2011 were seen more than 50 bps tighter, while General Electric's 5% notes due 2013 were at about 60 bps wider.

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