High-grade issuers stand down to end week, BP sees slight gains, recent deals mostly tighter

By Andrea Heisinger

New York, June 4 - The high-grade primary bond market was quiet on Friday after two days of steady issuance.

Negative headlines may have been to blame, although, as a source said late in the day, "there weren't any deals planned anyway. We were done yesterday."

Potential issuers are expected to take stock again on Monday to see what has happened over the weekend. Headlines on Friday were mostly downbeat, and included BP plc being downgraded a notch by Standard & Poor's to AA- from AA.

Disappointing unemployment figures for May might have been the main reason for the quiet day. Although overall unemployment declined to 9.7% from 9.9%, the number of jobs added in the private sector was not as strong as hoped.

Most of the previous day's new deals were doing OK in trading, and were quoted at better than where they priced.

The 5.5% notes due 2020 from International Game Technology continued to tighten from their pricing spread of 220 bps over Treasuries. They were being offered at 205 bps Friday after being quoted the previous day at 211 bps bid, 208 bps offered.

Treasury yields were lower for the day, a source said. The 10-year note was in 16 bps to 3.2%, with the five-year note moving the same amount to 1.95%. The 30-year bond came in 14 bps to a yield of 4.13%.

"It was a weird day out there," a source said, adding that volume was "on the light side. A lot of it, I think, is the unemployment [numbers]."

The ongoing saga of BP Capital Markets plc bonds closed the week on a slightly higher note. They had been much wider for much of the week, but by later Friday had tightened slightly. The oil company has reported some success in its capping of the leaking well in the Gulf of Mexico, although the company said it would be a few days until it had most of the oil gushing out trapped.

The CDX Series 14 showed spreads were wider from the previous day after being unchanged. They were out 9 bps to 126 bps, a source said, after being at 117 bps for two days.

High-grade primary stands down

No new bonds were priced to end the week, but one market source said he was optimistic about the week ahead.

"I think if we see things [improve] with the BP stuff and no new headlines, we could have deals [on Monday]," he said.

There are continued fears about eurozone countries, with Hungary being the latest to face economic woes.

"Where did that come from?" a source asked. "Who knew we'd be worrying about Hungary. Everyone's afraid the contagion is spreading."

The unemployment figures had no real impact on the primary market since there weren't any new sales.

"Everyone was expecting big gains, and I think there was some big disappointment in those unemployment numbers," a source said.

Spreads are also slightly higher on new bonds for the week, so companies are being more selective about issuing, the source said.

"Corporate bonds were wider today," a trader said.

Recent issues mostly trade better

New bonds priced on Thursday were mostly better in next-day trading, with one exception.

Among the gainers, the 5.5% notes due 2020 from International Game Technology continued to tighten from the 220 bps over Treasuries level at which they came to market. They were being offered at 205 bps on Friday and were quoted the previous day at 211 bps bid, 208 bps offered.

The 5.85% bonds due 2040 from Oklahoma Gas & Electric Co. were quoted early Friday at 160 bps bid, a couple of basis points tighter than the 162.5 bps over Treasuries at which they were sold. The securities mostly disappeared after the early quotes. The previous day they were at 156 bps bid, 152 bps offered.

The 6% first mortgage bonds due 2040 from Tri-State Generation & Transmission Association Inc. were unseen in trading Thursday because of they priced late in the session. But they had improved slightly by Friday. A trader quoted them at an offer of 175 bps, with no bid. They priced at 187.5 bps over Treasuries.

The exception to the general tightening trend in Thursdays deals was Waste Management Inc. Its 4.75% notes due 2020 were quoted at 150 bps bid, 146 bps offered. This was wider at the bid from the 147 bps over Treasuries at pricing. They had tightened slightly the previous day to a bid of 144 bps and an offer of 142 bps.

Trading light on 'weird day'

There was lower volume for the day and a string of things impacting who bought what in the secondary.

"Anyone who didn't buy bonds yesterday - I bet they're kicking themselves because they're more expensive today," a source said.

BP Capital Markets bonds were "a little better," a trader said. The company's 3.875% bond due 2015 was quoted at 94 bid and then 94.75 later in the afternoon. A few days ago that same bond was at 93.375.

"They've improved a little on the bid," they said.

Another bond that has been active recently is BP's 4.75s due 2019. They were quoted at 235 bps bid, 220 bps offered. They had been at levels about 4 bps wider in the morning, the trader said, noting that that was an improvement from the previous day when the bond was quoted at 249 bps.

The bonds could be bouncing around for some time, as litigation and other issues arising from the Deepwater Horizon disaster are drawn out, the source said.

News on Friday also included the ratings cut announced by S&P.

"There are so few bonds rated AA [rated] on both sides," they said. "Honestly, I thought they would get cut more."

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