Tone, other factors leave primary vacant; corporate bonds widen; bank, retail paper weaker

By Andrea Heisinger and Cristal Cody

New York, April 18 - There was not much optimism on Monday that issuance in the investment-grade bond market would pick up throughout the remainder of the short holiday week.

One source said late in the day that the market had a "terrible tone" due to several headlines, including euro zone debt worries and Citigroup Inc. reporting earnings that were down more than 30% from a year earlier.

Those events combined with earnings, the start of Passover and the upcoming Easter holiday are likely to leave issuers on the sidelines until possibly the following Tuesday.

"I think we'll see something [this week], but it's not going to be anything crazy," one syndicate source said.

"We had nothing today and it's going to be quiet."

The source added that he "didn't know of anything coming up" for Tuesday or beyond.

Overall investment-grade Trace volume was flat at about $8 billion on Monday, a market source said.

"It was very, very quiet," one trader said. "Didn't see any new deals."

Bonds overall were 3 bps to 5 bps wider, traders said.

The Markit CDX Series 14 North American investment-grade index eased 2 bps to a spread of 96 bps on Monday, Markit Group Ltd. said.

In the financial bond sector, domestic banks were closing the day about 5 bps wider, while Yankee bank bonds widened about 10 bps, a trader said.

Bank of America Corp.'s 7.375% notes due 2014 (A2/A) widened 12 bps to 170 bps on Monday, another informed bond source said.

Gap Inc.'s 10-year notes widened 15 basis points in the secondary, a trader said.

Also in the sector, Wal-Mart Stores Inc.'s new 10-year notes stayed weaker in secondary trading, while the 30-year bonds were a bit firmer, a trader said.

Treasuries rose on Monday, sending yields down across the curve as bonds recovered on overseas debt concerns in Europe and Greece after Standard & Poor's gave a negative outlook to the United States' long-term credit rating. The benchmark 10-year Treasury note yield fell 4 bps to 3.37%, while the 30-year bond yield fell 2 bps to 4.45%.

Gap widens

Gap's 5.95% split-rated 10-year notes (Baa3/BB+/BBB-) priced on April 7 at a spread of Treasuries plus 245 bps.

"Gap's closing about 15 basis points wider today," a trader said.

The notes were last seen at 260 bps bid, 255 bps offered.

Gap's equity was cut to neutral by Bank of America and cut to sell by Goldman Sachs, which "probably impacted the bonds a bit," a source said.

The clothing retailer is based in San Francisco.

Wal-Mart 10-years wider

Wal-Mart's debt (Aa2/AA/AA), which sold on April 11, continued to be mixed in the secondary market, a trader said.

The 4.25% notes due 2021, which priced at a spread of Treasuries plus 75 bps, stayed wider at 80 bps bid, 78 bps offered, the trader said.

Wal-Mart's longer bonds, the 5.625% bonds due 2041, traded late Monday at 109 bps bid, 107 bps offered. Wal-Mart priced the bonds at Treasuries plus 110 bps.

The discount retailer is based in Bentonville, Ark.

Bank, broker CDS weak

The cost of protecting holders of big-bank bonds against a possible event of default via a credit-default swap contract was 7 bps to 4 bps wider, a source said.

The cost of a CDS contract covering bonds of major brokerage houses was 7 bps to 3 bps wider.

Stephanie Rotondo contributed to this review

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