Credit market dips after Fed speech; hurricane makes deals uncertain; bank paper tightens

By Andrea Heisinger and Cristal Cody

New York, Aug. 26 - The high-grade bond primary market had no reported activity Friday, owning to the effects of a speech from Federal Reserve chairman Ben Bernanke that some viewed as disappointing and to Hurricane Irene bearing down on the East Coast.

The Fed's Bernanke spoke at a meeting in Wyoming but gave no mention of another round of quantitative easing as some had hoped and also commented that the economy isn't as robust as expected.

"It wasn't really surprising, but I think people were hoping for QE3," said one syndicate source.

Equities gave a "knee-jerk reaction" and credit moved wider as a whole, a market source said, but the "markets calmed down as they gradually digested" the news.

The syndicate source said that "everyone's bailing early today" from desks to prepare for the coming hurricane.

"Who knows what will happen on Monday," another market source said. "I think we'll be open but no one knows."

Even if companies are ready to price debt, there could still be no market activity to start the new week.

"No one's going to bring any deals if there's no one to bring it," the market source said. She was referring to sellside traders and other staff at the investment banks not being able to make it to work Monday.

Overall trading volume dropped more than 40% to less than $8 billion on Friday.

"Volume was pathetic," a trader said.

The Markit CDX Series 16 North American high-grade index was unchanged on Friday at a spread of 126 basis points.

"Quiet day out there in the credit markets," a bond source said. "Spreads are pretty much unchanged today, volume is about 75% of the typical level. Some of that is it being Friday and some of it is concentration in the interest rate sector rather than the credit sector."

Financial bond spreads ended the day about 1 bp to 4 bps tighter on volatile, thin trading with Bank of America Corp. paper active in trading.

"Bank of America's 5.75% 2016 [notes] are tighter by about 15 bps or so, but other Bank of America notes weren't moving as aggressively," a source said. "The trades are all over the place. Even within a five-minute range, we saw spread movement as much as 25 bps."

Bank bonds were seen trading about 5 bps to 15 bps wider at one point during the day, but on extremely light flow, a trader said.

Also in the secondary market, Kinross Gold Corp.'s bonds traded flat on Friday as gold prices fluctuated over the week, sources said.

Treasuries were stronger after Bernanke's comments. The benchmark 10-year note yield fell to 2.19% from 2.23%. The 30-year bond yield dropped 7 bps to 3.53%.

Bank of America volatile

Bank of America was "wider again today. After Buffet came out with his announcement, things tightened up, but we're still a little wide off of the tights," a trader said.

Bank of America's 3.75% notes due 2016 traded at 371 bps early Friday. "It's now trading at 356 [bps] over and was bid earlier today at 380 [bps]."

The company's paper "just bounces all over the place," the trader said.

Bank of America's bonds rallied on Thursday after the announcement that Warrant Buffet's Berkshire Hathaway will inject $5 billion into the company.

Bank of America's 5.65% notes due 2018 were seen offered on Friday at 355 bps, compared to where they were quoted trading on Thursday at 368 bps bid, 340 bps offered, the trader said.

The financial services company is based in Charlotte, N.C.

Kinross Gold flat

Kinross Gold's U.S. dollar-denominated high-grade senior notes traded mostly unchanged in the secondary market on Friday, traders said.

The company priced $1 billion of senior notes (Baa3/BBB-/BBB-) in three tranches on Aug. 16.

The tranche of 3.625% notes due 2016 was seen unchanged from Wednesday at 285 bps, a trader said. The notes were sold in a $250 million tranche at a spread of Treasuries plus 270 bps.

The $500 million tranche of 5.125% notes due 2021, which priced at 99.141 to yield 5.236% with a spread of 290 bps over Treasuries, traded wrapped around the new issue spread a source said.

"Market's pretty wide, but it looks like [the] bid's a little wider, ask is a little tighter," the source said.

The notes late afternoon were seen a little higher in dollar price at par bid, 100.96 offered, a trader said.

Kinross Gold's 6.875% bonds due 2041 traded flat at 340 bps offered, a trader said. The notes priced at 315 bps over Treasuries.

The mining and gold ore processing company is based in Toronto.

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