New deals absent as market tone unsteady; secondary weaker; financials flat; Hershey narrows

By Andrea Heisinger and Cristal Cody

New York, Dec. 10 - The investment-grade bond market was void of activity on Friday following several days stocked with new deals.

Sources said the coming week could be busy on the top half, although they couldn't pinpoint what sectors those bonds would be coming from.

"I think we're going to see things if the tone holds out," a source said. "It wasn't great today."

Many of the marquee deals should come toward the top of the week, with smaller ones trickling in later.

"We've had a lot from the financials lately," the source said. "I don't know if we'll see more of them."

The coming week could be the last chance for some companies to price deals before the holidays, and if rates are low, they may take advantage of that.

The secondary market was quiet on Friday, according to sources.

"Light volume. There was a little bit of activity in the morning, and then it died out in the afternoon," a trader said.

Kellogg Co. and Hershey Co. bonds have firmed in secondary trading since the deals priced on Wednesday, though the bonds were flat on Friday, a trader said.

Also in the secondary, Constellation Energy Group, Inc.'s new 10-year notes sold on Thursday widened 1 basis point on the bid side on Friday, a trader said.

"It definitely felt weaker in the afternoon by a basis point or two," a trader said. "It was really hard to sell bonds."

Overall investment-grade Trace volume dropped 25% to about $10.5 billion, a source said.

The financial sector was mostly unchanged but ended the day 1 bp to 2 bps better, a source said.

For example, Citigroup Inc.'s 8.125% bonds due 2039 (A3/A/) closed 3 bps tighter at 202 bps, a source said.

Goldman Sachs Group, Inc.'s 7.5% notes due 2019 (A1/A/) were 2 bps firmer at 186 bps on Friday.

"There's not a ton of conviction pushing things one way or the other," a source said.

The Markit CDX Series 14 North American investment-grade index ended Friday 1 bp tighter at a spread of 87 bps, according to Markit Group Ltd.

Treasuries were lower on Friday, sending the 10-year benchmark yield up 12 basis points to 3.32% on further "recognition of the pain that's been dealt this week," said George Goncalves, strategist at Nomura Securities International, Inc.

The 30-year bond yield rose 3 bps to 4.43%.

Hershey firms, Kellogg flat

Hershey ended Friday about 1 bp tighter from the previous day but still stronger than pricing of 88 bps over Treasuries.

"Today they closed at 77, 75," the trader said. "Both Hershey's and Kellogg are unchanged from yesterday," a trader said.

The Hershey, Penn.-based candy company priced $350 million of 4.125%10-year notes (A2/A) to yield Treasuries plus 88 bps on Wednesday.

Also on Wednesday, Kellogg sold $1 billion of 4% 10-year notes (A3/BBB+) at a spread of Treasuries plus 88 bps.

Kellogg's new notes closed out Friday at 88 bps bid, 86 bps offer.

The breakfast cereal and snack company is based in Battle Creek, Mich.

Constellation Energy Group priced $550 million of 5.15% 10-year notes (Baa3/BBB-) to yield 195 bps over Treasuries on Thursday.

In trading on Friday, the notes were quoted at 196 bps bid, 192 bps offered.

"They're wrapped around the new deal price," a trader said.

The energy generation and utility business is based in Baltimore.

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