B of A bonds widen; GE Capital unmoved on earnings; industrial trading null on bank focus

By Andrea Heisinger

New York, Oct. 16 - The end of the week on Friday in the high-grade bond market was much different than how it began a few days earlier. There was a glut of issuance after a long weekend, which faded into two days of little to no new deals.

Both Bank of America Corp. and General Electric Capital Corp. reported earnings on Friday, following in the footsteps of the other banking and financial giants in the days before.

Bank of America reported a loss, while GE Capital posted a generous profit for the third quarter.

In response, Bank of America bonds were wider, while GE's were mostly unchanged, a trader said in the afternoon.

A handful of banking and financial names were also seen on the day's most-active bonds list.

The industrial side of the secondary was virtually dead, a trader in that sector said. The focus was solely on the bank bonds, he said.

Spreads were wider overall as Treasury yields tightened moderately. The five-year note came in 4 basis points from the previous day to yield 2.34%. The 30-year bond was 6 bps better at a 4.24% yield.

B of A, GE bonds mixed on day

Bank of America and General Electric Capital reported much different earnings on Friday, which had a varied effect on each of their bonds.

Bank of America reported a third-quarter loss, which reflected lightly on its outstanding notes. They were 5 to 7 bps wider, a trader said in mid-afternoon.

This was on par with the marginal movement from Citigroup Inc. bonds on Thursday after it announced a loss for the quarter.

GE Capital's bonds were not really moving one way or another after the funding arm of General Electric announced a $2.5 billion profit for the quarter.

GE Capital, bank bonds top trading

Financial names topped the list of most-active bonds for the day as of early afternoon, a trader said.

This followed a trend for the week as large banks announced earnings for the third quarter throughout the week.

At the top of the heap was a 6% bond due 2019 from GE Capital that was quoted at 203 bps over Treasuries.

The company showed a Q3 profit on Friday morning of $2.5 billion. It was a 44% decrease from the same time the previous year.

The profit was on par, or even slightly exceeded analyst expectations.

Also trading heavily was a 7.625% bond due 2019 from Bank of America. The banking giant reported a dismal Q3 loss of more than $1 billion.

The bond was quoted at 244 bps over Treasuries.

The bank has been hobbled by credit card and mortgage losses. It has also not paid back money from the government's bailout, along with Citigroup.

Citigroup also had one of the top-traded bonds of the day. Its 8.5% bond due 2019 was behind GE Capital's in volume. Citi's bond was trading at 303 bps over Treasuries.

Industrial bonds lost in shuffle

There was not much activity on the industrial side of the secondary market late on Friday, a trader in that sector said.

"Everything is banks," he said. "There are no spreads left on industrials. Everyone's going toward bank stuff with earnings [announcements]."

He called Friday a "terrible market," with the loss announcements from Bank of America, and the previous day's from Citigroup.

"All of the deals are junk [rated]," he said.

The high-yield market had far more new issues to end the week.

One of the lone industrial bonds trading actively on Friday amid the bank names was from International Paper Co. The pulp and paper company's 7.5% bond due 2021 was among the most-traded.

The trader said he wasn't sure why, but he quoted that bond at 305 bps bid.

"There's not any news out on them, that I can see," he said.

RBS bond gains

The new 6.4% bond due 2019 from the Royal Bank of Scotland Group plc that sold at 300 bps over Treasuries on Wednesday was continuing to gain slightly by late in the afternoon Friday, a trader said.

He quoted it at 286 bps bid, with an offer of 281 bps over Treasuries.

This was a slight gain from the previous day's quote of 287 bps bid, 284 bps offered.

Coming week to remain slow

Earnings continue in the coming week, although many of the large bank names have already given their Q3 numbers. Wells Fargo & Co. gives its earnings on Oct. 21.

The past week saw days of heavy issuance and days with little. The coming week could be the same.

"Obviously it's different," a syndicate source said. "This was a short week, and next week is not. We still have earnings to get through. It should be kind of slow."

Some of the banks that reported earnings in the past few days could potentially issue bonds in the coming week now that they're out of blackout.

"We could see Citi or Bank of America do something," a source said. "They still need to pay the government back. They have until the end of the month for TLGP."

Another name thrown around to do a possible deal in the next couple of weeks is Pfizer Inc. on its acquisition of rival drug maker Wyeth.

"[I] definitely wouldn't be surprised," a source said.

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