Wells Fargo prices issue to end week of more than $21.5 billion; coming week's volume uncertain

By Andrea Heisinger and Paul Deckelman

Omaha, Jan. 25 - It was a typically quiet Friday, with Wells Fargo & Co. bringing the bulk of new issuance.

Primary volume for the week totaled more than $21.5 billion.

In the investment-grade secondary market Friday, advancing issues outnumbered decliners by a three-to-two ratio. Overall activity, reflected in dollar volume, declined nearly 28% from Thursday's busy levels.

Traders saw Wal-Mart Stores Inc.'s new bonds - technically, its re-opened 10-year and 30-year issues, which priced on Wednesday - trading firmer on Friday, and also saw Harvard University's new bonds having also tightened. However, people in the market explain that in many cases, recently priced new issues are doing so well in the aftermarket because they may have been priced too cheaply in the first place, just to get the deal done.

Among the established bonds, financial issues generally were seen tighter, including such well-known names as Bank of America and Citigroup.

Among the non-financial names, there was sizable activity in Sprint Nextel, helped by investor optimism about the strength of the wireless industry.

Bond insurers Ambac Financial Group and MBIA Inc.'s debt-protection costs narrowed, helped by news reports indicating Ambac could be an acquisition target.

Wells Fargo brings $4.5 billion

Wells Fargo priced $4.5 billion in two tranches.

The $1.5 billion tranche of two-year floating-rate notes priced at par to yield three-month Libor plus 43 basis points.

The $3 billion tranche of 4.375% five-year notes priced at 99.694 to yield 4.444% at a spread of Treasuries plus 167 bps.

Other issuers for the week included European Investment Bank, Wal-Mart Stores Inc., Bank of America Corp., Export Development Canada, IBM International Group Capital LLC, CAF, National City Corp., International Lease Finance Corp., M&T Capital Trust IV and Harvard University.

The coming week could be busy or slow, sources said, depending on market conditions and other factors.

The Federal Reserve meeting on Tuesday and Wednesday shouldn't slow new issues, a source said. A 50 basis points cut to rates is expected although some are beginning to wonder whether the reduction will be that big.

"We will see financials and banks out of their earnings blackout," a market source said. "People have a fairly good idea of what's going to come out of the Fed meeting, so that won't affect anything."

Those who do come to the market will likely be doing shorter bonds, a source said.

"We saw some one-year trades at the end of the week," he said.

Volatility in both the bond and stock market this week affected some issuers who ended up not coming in as planned, the source said.

"We're talking about a market where the volatility has been unbelievable," he said.

They cited the two-year Treasury benchmark bond swinging from 1.85% to 2.30% within a couple of days.

"There are a lot of people lined up to issue," a market source said. "As long as it's stable we could see a bunch of issuers right out of the gate on Monday."

Issuers are paying a wide range of new issue premiums depending on their rating and the tenor of the bond.

A source said those with Aaa ratings can expect to pay about 30 bps, while others will pay between 20 and 50 bps.

One issuer paid a 50 bps premium this week, the source said.

Wal-Mart tighter

A trader said that the new Wal-Mart 5.80% notes due 2018 were trading at 148 bps over comparable Treasuries on the bid side and 142 bps on the offered side. The issue had priced at 167 bps over last Wednesday. The giant retailer's 6.50% bonds due 2037 have narrowed to 197 bps bid, 192 bps offered, well in from the 217 bps over at which the bonds had priced, in tandem with the 10-years.

He also saw the new Harvard University 5.625% bonds due 2038 having narrowed to 135 bps bid, 130 bps offered, after having priced at 140 bps over. He did not see the 3.7% notes due 2013, which had priced at the same time as the 30 years, with a 110 bps spread.

Sprint better

Back among the established issues Sprint bonds continued to come in, with the company's 6.90% notes due 2019 having tightened about 30 bps to the 435 bps mark, while its 6% notes due 2016 came in to 395 bps.

Among the financial names, Bank of America's 4.875% notes due 2013 were seen by a market source having also tightened around 30 bps to the 140 bps level. Citigroup's 4.125% notes due 2010 were quoted having likewise come in about 30 bps to the 155 bps level.

Ambac, MBIA CDS narrow

A trader said that CDS swap spreads on Ambac and MBIA tightened, helped by news reports that Ambac could be an acquisition target, with billionaire financier Wilbur L. Ross mentioned as a possible buyer.

He quoted Ambac's debt-protection costs on its AA paper as having come in to about 10% upfront and 500 bps annually from Thursday levels at 13.5% upfront and 500 bps annually. Sector peer MBIA's CDS spreads tightened to a level around 9% upfront and 500 bps annually, versus 12.5 bps upfront plus 500 bps Thursday.

He also saw Ambac's AAA paper CDS spread at 320 bps bid, 360 bps offered and MBIA's at 370 bps bid, 410 bps offered, with no upfront costs.

Elsewhere in the CDS market, the trader saw major bank paper's debt-protection costs generally around 1 bp to 10 bps tighter on the day, except for Washington Mutual; the big thrift's CDS tightened by 15 bps to 320 bps bid, 340 bps offered.

Major brokerage paper's debt-protection costs on the other hand was about 5 bps wider "across the board."

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.