U.S. Bancorp, Paccar, Ontario sell IG bonds; new bonds tighter; oil companies in spotlight

By Andrea Heisinger

New York, June 9 - U.S. Bancorp, the Province of Ontario and Paccar Financial Corp. priced issues in the high-grade bond market on Wednesday as financials monopolized new deals.

It was a reversal from recent weeks when nearly all of the sales came from industrial and sovereign names.

U.S. Bancorp was the first to price its $1 billion of three-year notes. They were priced in line with where they were talked.

Paccar Financial priced $250 million of three-year notes soon after the U.S. Bank deal.

A benchmark $2.5 billion of five-year notes was priced later in the day by Ontario. The notes priced in line with guidance, a source said.

A remarketing was also announced in the afternoon by Citigroup Inc. The banking and financial giant plans to remarket some junior subordinated debentures due in 2041 as long three-year senior unsecured notes.

One syndicate source couldn't muster much enthusiasm when asked about the market for the day.

"We had some deals, but not much else changed," he said, referring to the down tone that has dogged the market recently.

"We may see a couple [of sales] tomorrow, but it might just be the stuff already announced."

The secondary market was sluggish and shifted its focus to oil companies despite having new issues pricing.

The new 2.05% three-year note from Paccar was seen tightening a little in trading, mostly on the offer, a trader said. The 2% three-year note from U.S. Bancorp also performed well, tightening about 5 bps in trading.

A 10-year Treasury note auction had good demand, and Treasury yields were mostly unchanged to slightly better than the previous day, a source said.

The Markit Series 14 CDX index showed spreads were slightly wider than the previous day. It was at 131 bps, and ended at 130 bps on Tuesday.

This was in line with the rest of the market, a trader said, which was mostly unchanged from where things stood the previous day.

Oil companies regained the focus in trading, with BP Capital Markets Corp. and Anadarko Petroleum Corp. having bonds among the most traded of the day.

U.S. Bancorp prices $1 billion

U.S. Bancorp sold $1 billion of 2% three-year senior unsecured notes (Aa2/A+/AA-) early in the afternoon to yield Treasuries plus 85 bps, an informed source said.

The deal priced in line with guidance, they said.

In trading, the bonds improved about 5 bps, a trader said. They were quoted at a bid of 81 bps and a 79 bps offer.

Goldman Sachs & Co., Morgan Stanley & Co. Inc. and U.S. Bancorp Investments were bookrunners.

The financial services holding company is based in Minneapolis.

Paccar prices short-term bonds

Paccar Financial priced $250 million of 2.05% three-year notes (A1/A+) by mid-afternoon to yield 92 bps over Treasuries, a market source away from the deal said.

The bond tightened slightly after pricing, a trader said. He quoted it at a bid of 91 bps, with an offer of 85 bps.

Bank of America Merrill Lynch and BNP Paribas Securities were active bookrunners, with Mitsubishi UFJ Securities as passive.

Proceeds are being used for general corporate purposes.

The provider of retail and commercial truck financing for Paccar Inc. is based in Bellevue, Wash.

New deals done out of need

Part of the backlog of bonds that has built up in the investment-grade market came out on Wednesday after issuers had been forced to hold off on pricing deals due to volatility.

There have been virtually no deals all week, with only Altria Group Inc. pricing an $800 million sale so far.

"It's still not great," one source said of the market tone. "No one knows how long it will [last]. It's not as bad as in high yield."

An issue remains on the calendar from Zions Bancorp. The Salt Lake City-based financial holding company announced on Tuesday that it would sell perpetual preferred stock, and the deal did not price on Wednesday, a source close to it said. They added that they did not know when it will be sold or the size.

There is also an upcoming government-backed issue from Denmark's Vestjysk Bank that was announced on Monday. It was slated for "later this week" and is expected to be $500 million of three-year notes.

Ontario sells five-years

The Province of Ontario sold a benchmark $2.5 billion of 2.7% five-year global bonds (Aa1/AA-) by late afternoon to yield Treasuries plus 73.55 bps, a market source close to the deal said.

They were talked in the mid-swaps plus 40 bps area, a source said, and priced in line with that.

Bookrunners were Barclays Capital, Deutsche Bank Securities, Morgan Stanley & Co. Inc. and RBC Capital Markets.

The province is said to have priced the deal to help shore up liquidity.

The issuer is based in Toronto.

Citi to remarket notes

Citigroup is remarketing its issue of 6.455% junior subordinated deferrable debentures as $1.875 billion of three-year notes, according to a 424B2 filing with the Securities and Exchange Commission.

There was no word on if the deal had priced as of press time.

The notes (A3/A/A+) were originally issued as debentures due on Sept. 15, 2041 to Citigroup Capital XXX. In early May, they were given senior ranking, giving them a shorter maturity. Then, on May 24, Citigroup Capital XXX was dissolved and the notes distributed to holders of the capital securities.

Citigroup Global Markets is the remarketing agent.

Proceeds will not go to Citigroup Inc., but are instead being used to pay the remarketing agent, purchase an interest-bearing deposit with Citibank, and if any money is remaining, will be remitted to holders of Upper DECS Equity Units participating in the remarketing.

The financial services company is based in New York City.

BP Capital bonds back in trading

Outstanding notes from embattled oil company BP plc unit BP Capital Markets were active again in trading, sources said late in the day.

The company's 4.75% bonds due 2019 were high on the list of most-active investment-grade bonds, with a 3.125% notes due in 2012 joining it.

Anadarko Petroleum's 6.45% notes due in 2036 were also being traded heavily.

"Everyone's concentrated on the oil names," a trader said when asked what the focus of the secondary market was.

They were not at the top of the investment-grade actives list, however, with that honor falling to 5.5% notes due 2020 from General Electric Capital Corp.

A junk trader saw BP's 5 ¼% notes due 2013 down almost 7 basis points "on very large volume." They were last trading around 91¼ bid.

He saw the oil giant's 3 7/8% notes due 2015 down almost 9 basis points at 86¾ bid "on large volume, while its 3 5/8% notes due 2015 lost more than 7 basis points to end at 87.

He also saw Transocean Inc.'s bonds down about 4 basis points on the session.

At another desk, a trader quoted Transocean's 6.80% bonds due 2038 trading in an 82 bid, 84 offered context - versus Tuesday's levels of 85-86 - although he saw the bonds ending around 84.

That trader also saw the Transocean 6% notes due 2018 at 88 bid, 90 offered, which he said was "about where they had been."

Financials continue to struggle in trading

Bonds from big financial names, like Bank of America Corp., Goldman Sachs Group Inc., Citigroup Inc. and Morgan Stanley, were universally wider in trading on Wednesday than they were on Monday.

Some outstanding Citigroup bonds were quoted as 35 bps wider, with Bank of America and Goldman seeing some of their notes move out between 1 bps and 10 bps. Some of Morgan Stanley's bonds were see between 10 bps and 20 bps worse than Monday.

For instance, Citigroup's 6.375% bonds were about 35 bps wider than on Monday, when they were quoted at 290 bps. On Wednesday, they were at 325 bps. Morgan Stanley's 5.625% notes were 13 bps worse at 307 bps.

Goldman Sachs was not hit as hard, with the biggest mover being its 6.75% notes quoted at 9 bps wider, with a spread of 301 bps.

Treasuries unmoved after 10-year auction

An auction of reopened 10-year Treasury notes was well-received on Wednesday, a source said. Treasury yields were unchanged to marginally wider by the market close.

The previous day, they had ended generally weaker by 3 bps to 6 bps.

A source quoted the three-year Treasury note as wider by 2 bps at a yield of 1.19%. The 10-year note was unchanged at 3.18% and the 30-year bond was also unchanged at 4.11%.

"[They] crawled all the way back to flat," a trader in the sector said late in the day.

Paul Deckelman contributed to this report.

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