Commonwealth Bank, Toyota Motor Credit deals pick up pace slightly

By Andrea Heisinger and Paul Deckelman

Omaha, Jan. 3 - The investment-grade market saw a slight amount of activity Thursday with new issues from the Commonwealth Bank of Australia and Toyota Motor Credit Corp.

This is likely the last of the issuance for the week as many companies wait until the beginning of next week to come to the market, sources said.

Commonwealth Bank of Australia priced $2.5 billion five-year extendible floaters at par in a Rule 144A deal.

They start with a coupon of three-month Libor plus 20 basis points, which steps up 2 bps each year until the final year when it increases by 1 bp.

The notes initially mature in 2009, with a final maturity in 2013.

HSBC Securities was bookrunner.

Toyota priced $325 million in floating-rate medium-term notes at par to yield one-month Libor plus 5 bps.

Merrill Lynch, Pierce, Fenner, Smith & Co. Inc. was lead.

Deals expected to start Monday

With many traders taking time off after the holidays, issuance won't hit full stride until Monday, sources said.

"The frequent issuers will come Monday or Tuesday," a source said. "We'll see a lot of banks and brokerages coming out."

The Treasury market was back up at lower levels than it was Wednesday, the source said, with hopes that stability would continue into next week.

"I would be shocked to see anything tomorrow," a source said of Friday's session. "We'll start to see guys coming back next week."

There has been a backlog of new issues since before Christmas, with companies and financials holding off until 2008.

One source said he knew of at least two to three issues coming out next week, with more expected.

In the meantime, secondary trading was also on the slow side, a market source said.

"It's quiet in the secondary as well," he said. "Nobody's really doing any trading."

Secondary stays quiet

In the investment-grade secondary market Thursday, traders said that activity remained generally restrained - no one seriously expects much to happen before Monday at the earliest - and spreads were a bit wider on the day, but nothing too dramatic.

Looking at the broad market, advancing issues led decliners by about a three-to-two ratio. Market activity, as gauged by overall dollar volume, jumped 78% from Wednesday's first session of the new year.

Financial issues were mixed, with Lehman Brothers seen up, Bear Stearns off and Goldman Sachs mixed. Another mixed name, this one non-financial, was News America Corp.

Traders saw little or no aftermarket activity in the tranches of new Toyota Motor Credit bonds which priced on Wednesday and Thursday.

In the credit-default swaps market, debt protection contracts for such names as Lehman, Bank of America and Washington Mutual were seen continuing to rise modestly.

Spreads wider

A trader said that at his shop, spreads were seen having widened out around 2 basis points to 5 bps pretty much across the board, although there were, of course, individual exceptions. He stressed, however, that there was "no massive exodus" from the market. "It was just a little softer. This was a contained, controlled widening."

He said that it appeared that "the new issue calendar is building as well." He said that "odd accounts are still finishing up their year end."

He added that there was "some retail buying that we did see from accounts that were active. And he said that he had not seen any aftermarket activity in the new Toyota Credit one - and two-year notes.

Financials mixed

A market source saw financial bonds mixed, with Lehman's 4¼% notes due 2010 having come in about 10 points to around the 205 bps area, while Goldman's 4½% notes due 2010 were also 10 bps tighter on the day, at 145 bps.

However, not all Goldman paper was tightening up - the brokerage's giant's 5.45% notes due 2012 were out about 10 or 12 bps to the 150 bps level.

Also straddling both sides of the line was News Corp.'s financing arms, News America, whose 6.15% notes due 2037 were quoted about 10 bps tighter at 185 bps, while its 5.30% notes due 2014 widened out by around that same amount to the 140 bps neighborhood.

Also on the downside, Bear Stearns' 6.40% notes due 2017 - one of the most actively traded issues on the day - was seen having widened out about 11 bps to 274 bps.

In the credit default swaps market, a trader saw the debt-protection costs of major banks and brokerages unchanged to about 3 bps wider on the day.

Among the brokerages, Bear Stearns stood around 183 bps bid, 191 bps offered, while Lehman's CDS cost was 122 bps bid, 129 bps offered. Among the banks, Bank of America's debt-protection cost was quoted at 50 bps bid, 56 bps offered - ditto for JP Morgan - while at the wider end of the scale, Washington Mutual's CDS cost was about 5 bps wider at 415 bps bid, 435 bps offered.

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