IBM prices $2 billion following upbeat earnings; AT&T bonds, short-dated bank paper widen

By Andrea Heisinger and Cristal Cody

New York, July 19 - There was one corporate sale in the high-grade bond market on Tuesday from International Business Machines Corp. after the technology name announced second-quarter earnings.

IBM priced $2 billion of five-year notes at the tight end of talk. It was the only dollar-denominated sale for the day that wasn't in the emerging markets sector.

The company sold the bonds following its positive earnings announcement of $3.00 per share in the second quarter, a 15% increase over $2.61 per share a year ago.

Public Storage announced plans for a new issue of preferred stock during the session. Traders reported that the market was responding favorably.

The news pushed the company's existing preferreds down as accounts jockeyed positions a bit.

Goldman Sachs Group Inc. also announced Q2 numbers, but its earnings were met with disappointment after falling short of what analysts had expected. The investment bank posted a $1.05 billion profit that was higher than a year ago at $1.85 per share but lower than analyst predictions of $2.27 per share.

There was some positivity to end the day. A market source said there was progress on the debt ceiling talks.

"I think it boosted us a bit," the source said, adding that there "wasn't much for deals expected anyway."

Two sources agreed it's possible that Goldman Sachs could still sell bonds on Wednesday if the company feels the market is hospitable and the need for financing is there.

"We've seen a lot [of banks] sell after earnings, so wouldn't be surprised," a syndicate source said.

Overall trading volume jumped more than 40% to about $11.5 billion on Tuesday. In other data, the Markit CDX Series 15 North American Investment Grade index improved 2 basis points to a spread of 97 bps, according to Markit Group Ltd.

Short-dated financial paper and telecommunication bonds were weaker in the secondary market. AT&T, Inc.'s long bonds widened 8 bps in trading, one bond source said.

Treasuries ended higher on the long end of the bond curve. The 10-year note yield fell 5 bps to 2.87%. The 30-year bond yield fell to 4.19% from 4.31%.

IBM's five-years

IBM sold $2 billion of 1.95% five-year senior notes (Aa3/A+/A+) at a spread of Treasuries plus 65 bps, a market source said.

They were priced at the tight end of guidance in the 70 bps area.

The bookrunners were Deutsche Bank Securities Inc., Goldman Sachs & Co., HSBC Securities (USA) Inc. and UBS Securities LLC.

Proceeds are being used for general corporate purposes.

IBM last priced bonds in a $1 billion sale of 1.25% notes due 2014 on May 9 at 37 bps over Treasuries. The company's last sale of notes with a five-year maturity was on Dec. 6, 2010, when it priced $1 billion of 2% bonds due 2015 at 55 bps over Treasuries.

The information technology and computer company is based in Armonk, N.Y.

Public Storage's preferreds

The big news of the day in the preferreds sphere was a new issue announced by Public Storage. It is expected to price this week.

"It came at the right time," a trader said. "Everybody is very happy. It's a great piece of paper.

"We really needed a new deal."

The Glendale, Calif.-based real estate investment trust said it will price series R depositary shares representing 1/1,000 of a cumulative preferred share of beneficial interest.

Bank of America Merrill Lynch, Morgan Stanley & Co. Inc., UBS and Wells Fargo Securities LLC are the joint bookrunning managers.

RBC Capital Markets LLC and J.P. Morgan Securities LLC are the co-managers.

"It should do pretty well," said a second trader. He saw the paper trading at $24.80 a few hours before the close.

After the bell, another market source pegged the preferreds at $24.87.

In its prospectus, the company said it will use the proceeds for investments, to redeem preferreds and for other general corporate purposes. According to a trader, the REIT intends "to take out the Ks."

AT&T weaker

AT&T's bonds moved out in the secondary market on Tuesday, a bond source said. The 5.8% notes due 2019 (A2/A-) widened 4 bps to 54 bps over Treasuries. The long bonds were weaker, with the 6.5% bonds due 2039 (A2/A-) 8 bps wider at 150 bps over.

The telecommunications company is based in Dallas.

Short bank paper wider

Short-dated financial notes traded weaker with bonds on the longer end of the curve ending flat on the day, a bond source said.

New York-based financial services company Citigroup, Inc.'s 5.5% notes due 2014 (A3/A) widened to 231 bps over Treasuries from 211 bps the previous day.

Also in trading, Bank of America Corp.'s 6.5% notes due 2016 (A2/A) were seen ending the day at 261 bps, compared with 234 bps on Monday.

Charlotte, N.C.-based Bank of America provides banking and financial services.

Stephanie N. Rotondo contributed to this review

© 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.