Week nets $3.1 billion in new deals amid bank fears; FDIC-backed bonds trade at high volume

By Andrea Heisinger

New York, April 24 - The high-grade primary market showed a pittance of new issues for the week as Friday came to a close. Factors such as bank stress tests, general worries about bank health and earnings announcements ground new issues to a virtual halt.

Issuance totaled about $3.1 billion among five deals for the week, including three backed by the Federal Deposit Insurance Corp. from General Electric Capital Corp.

The secondary was barren Friday, with little action happening in either the financial and non-financial sectors. As criteria for the government's bank stress tests were revealed, several FDIC-backed issues showed up on the day's highest-volume trading list.

Separately, a bond issued earlier in the week from Toledo Edison Co. continued to gain slightly in trading, a trader said.

Spreads were generally tighter as Treasury yields widened late Friday. The 10-year note was out 7 basis points from the previous day, landing at a 2.99% yield.

Little stress test criteria reaction

Federal Reserve regulators released criteria of stress tests on 19 of the nation's largest banks on Friday, as expected.

What impact this may have had on the primary market was lost Friday, a market source said, as there were no new issues to watch for effects. The report mostly dealt in broad terms.

"It didn't really get specific," the source said. "I think [investors] were wanting more."

On Thursday, a syndicate source said companies and investors were waiting for the results of the stress tests before they jumped into the market.

"I don't think this [report] really changed anything," the market source said. "We'll see what happens Monday."

Prior to the May 4 unveiling of the stress test data, the Fed regulators will review their findings with banks before the public sees them, and tell them if they need more capital. The banks will also have a chance to dispute anything they find wrong.

He also reported empty desks Friday afternoon as people took advantage of a lack of issues and nice weather. There were predictions of an unofficial half day the day before.

High-grade snags muni bonds

Interest in the new Build America Bonds is equal in the high-grade and municipal bond markets, a market source said Friday.

"It's obviously not a straight muni," she said. There is interest "more on the corporate side," she added - particularly in the $6.85 billion sale of these bonds on April 21 by the state of California.

"For lack of a better term, it's seen a lot of airplay," she said. "I personally think it's a little of both [investment grade and municipal]."

Entities can issue taxable bonds for capital projects and receive a direct Federal subsidy payment from the Treasury Department for a portion of their borrowing costs, according to the Internal Revenue Service web site.

The market source backs up what a syndicate source said Thursday.

"It's about a 50/50 split between high grade and municipals," the syndicate source said, referring to which desk the deals are being run off of. "There were a couple run off the high-grade desk."

The sales are attracting some "typical high-grade buyers," he said.

Toledo Edison remains tighter

The 7.25% bonds due 2020 from Toledo Edison were only slightly tighter Friday than the previous day's level but remained strong. They were quoted at 399 bps bid, 391 bps offered, a trader said, in significantly from their Treasuries plus 437.5 bps price on Tuesday. They were trading at about 400 bps bid on Thursday.

The utility's bond was about the only non-financial issue of the week.

Secondary remains empty

The non-financial sector of the secondary market was slow, as it has been for most of the week, a trader said mid-Friday afternoon.

"The weather is the only thing that is interesting today," he said when asked of any activity in the non-financial sector.

It was unclear whether there was any reaction from the financial sector to the release of bank stress test criteria by Federal regulators.

Financial bonds most popular

Trading volume was the highest for several financial names as of mid-afternoon Friday, a secondary source said.

General Electric Capital Corp. had the most highly traded bond, with its 5.875% bond due 2012 at the top. This bond is backed by the FDIC.

Other FDIC-backed bonds monopolized the top spots on the high-volume list, including two more from GE Capital.

MetLife, Ameren top movers

Bonds from MetLife and Ameren Energy Generating were two of the day's big movers as of late Friday, a market source said.

MetLife's 5.375% due 2012 was more than 90 bps tighter than the previous week. It is one of 19 names that are part of the government's stress test, the criteria for which were released Friday.

Ameren Energy's 7% bond due 2018 was nearly 40 bps wider than the previous week. This came the day after the St. Louis-based power company suspended plans for a second nuclear plant in Missouri.

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