Slow start to year as companies expected to start unloading new issue backlog next week

By Andrea Heisinger and Paul Deckelman

Omaha, Jan. 2 - A weak market Wednesday meant 2008 got off to a slow start for new investment-grade issues.

Toyota Motor Credit Corp. priced $500 million in one-year floating-rate notes at par to yield one-month Libor plus 5 basis points.

J.P. Morgan Securities Inc. was bookrunner on what was likely the only new issue of the day.

A market source said there is still a fairly healthy backlog as companies waited until after the first of the year to issue.

Although conditions are still reasonably stable, the source said issuers will likely wait until next week to come into the market.

"I think news of the ISM report and the Fed minutes kind of made people back off," the source said.

The Institute for Supply Management issued its national manufacturing report for December Wednesday, showing the manufacturing sector of the country failed to grow in the last month of the year after spending much of 2007 on the upswing.

The Federal Reserve released minutes of a meeting, and market sources said it's anticipated there will be another rate cut during its meeting at the end of January.

The markets are expecting another 25 bps cut, a source said.

January's outlook is for robust issuance, which will probably start Monday if market conditions don't deteriorate.

"There's nothing today, and probably won't be until next week," a source said.

"A lot of people took the rest of this week off. You can expect it to be busy starting Monday, especially with the Treasury rally."

Stocks hurt trading

In the investment-grade secondary market Wednesday, advancing issues outpaced decliners by about a two-to-one margin, and overall market activity, represented by total dollar value, was several times that of Monday's sleepy, abbreviated pre-New Year's holiday session.

Even so, a trader said that in terms of real activity, "it was even slower than New Year's Eve - I mean, with the [equity] market doing what it did" - by some reports, he said, "the worst first day for the stock market since about 1932."

From where he sat, "there were very few accounts in today, and really nothing going on. Anybody that came in probably did it just for paperwork purposes, to square things away and get ready for next week."

With the market coming back from its holiday break in the middle of the week and trying in vain to gain some traction, the first session of 2008 represented "a false start to the year. I think people are buttoned up until Monday, and they'll start the year off then."

Target weaker

There was a fair amount of trading in Minneapolis-based retailing giant Target Corp.'s bonds, such as its 5 3/8% notes due 2017.

The trader called them "a little wider than they were last week," with the 10-year notes trading at 170 basis points over Treasuries bid, 165 bps offered.

"There were a lot trades in that context - but the only reason for that was maybe their sales weren't as [strong] as expected - but they weren't drastically wider. I think it was just some people trying to jockey for some positions right now, more than anything else."

Another market source did see the Target bonds trading at around 162 bps over, and saw Wachovia Corp.'s 5¾% notes due 2017 widening out to about the 202 bps range, a more than 20 bps widening on the session.

On the upside, Merrill Lynch's 6.05% notes due 2012 were seen having tightened about 15 bps to the 210 bps level, while Walt Disney Co.'s 5 7/8% notes were in about 10 bps to stand at 100 bps over.

Financial CDS widen

In the credit default swaps market, a trader said that the debt-protection costs for major banks and brokerages began the day pretty much unchanged, with Bear Stearns at 175 bps bid, 183 bps offered, and Lehman Brothers at 117 bps bid, 125 bps offered.

Bank of America and JP Morgan were both about 47 bps bid, 52 bps offered, with Wachovia at 103 bps bid, 110 bps offered, and Washington Mutual at 400 bps bid, 425 bps offered.

However, as the day dragged on, he said, the sector weakened, causing the CDS spreads to widen about 3 bps to 5 bps pretty much across the board.

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