Trading volume dips as primary empties; market looks to earnings; few new offerings on tap

By Andrea Heisinger

New York, Oct. 9 - The new issue side of the investment-grade bond market was void of activity on Friday as it became an unofficial half day.

The previous day had three deals, and none were expected to close out the week ahead of both a long holiday weekend and the start of third-quarter earnings blackout.

There was "really nothing worth noting" on Friday, a syndicate source said. "I haven't seen any deals. It's quiet."

The tone hadn't changed, although he said that it was "hard to tell if anything changed."

The secondary side of the market was "very quiet," a trader said early in the day. That didn't change much by the afternoon, as there were no new deals to trade and activity was light in other bonds.

Spreads were quite a bit tighter by early afternoon as Treasury yields widened from the previous day's levels. The five-year note was quoted as being out 12 basis points to yield 2.34%. The 30-year bond was worse, having widened by 14 bps to yield 4.23%.

Earnings eyed

A market source termed Friday "a non-event," as many bond syndicate and trading desks treated it as "part of a four-day weekend."

"Everyone's too used to doing a short day," he said. "I don't know why they changed it. Everyone leaves early anyway."

It is also nearly time for third-quarter earnings announcements to begin. The unofficial start was this week with Alcoa.

"We will see more [next week], but not a lot," a syndicate source said. "We will not be that busy, I don't think. These first couple weeks of October are the blackout."

Sources have said that what little issuance is done will likely come from other countries taking advantage of a lack of competition from American names unable to sell bonds.

Commonwealth Bank of Australia did this on Thursday, as did French bank Credit Agricole SA earlier in the week.

Trading quiets

There was roughly half of the normal bond flow into the investment-grade secondary by mid-afternoon, a trader said.

"It was a low-volume day," she said. "We had about $4.5 trillion [flow]. It's usually about $8 trillion."

"There's not a lot of flow between the [primary] bond market basically being closed and the holiday."

There wasn't much to report, and little in the way of recent deals to quote levels on.

A 2.9% bond due 2014 that was priced on Wednesday by StatoilHydro ASA at 75 bps over Treasuries was little-seen. A quote from the morning put it at 10 to 15 bps better at 62 bps bid, 58 bps offered.

Most everyone is looking ahead to the coming week.

"The story next week will be earnings," the trader said. "There are a couple of big banks doing earnings, so that should have some impact on trading. The primary will still be quiet."

If those banks don't post numbers that meet third-quarter expectations from analysts, the trader said, that doesn't mean the high-grade bond market will dip.

"Even if it's bad, there's always the forecast for the next quarter. If that's good it can boost [the tone]."

Valero, bank bonds top trading

Valero Energy Corp. had one of the top-trading bonds by Friday afternoon as the oil refiner plans further layoffs at its refineries.

The company's 6.625% bond due 2037 was topping the most-traded list.

Also among the names with notes selling at high volume were a handful of bank names, which have been popular with investors throughout the week on continued good news for certain names.

Wachovia Capital Trust III saw its floating-rate notes due 2042 doing well in the secondary. This was followed by Bank of America Corp.'s 7.375% note due 2014 and Barclays Bank plc's 5.2% bond, also due in 2014.

One of the other top-traded deals came from Newmont Mining Corp. with its 6.25% bond due 2039. A trader said its activity was likely due to a bid the company made on a rival, citing a story on Bloomberg. The copper and gold mining operation also could have been affected by "gold going as crazy as it was" on Friday, she said.

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