Potential issuers sit on hands, wait out market jitters, Fed meeting; financial paper widens

By Andrea Heisinger and Cristal Cody

New York, Aug. 8 - Investors and potential issuers took a step back from the high-grade bond market on Monday following a weekend during which the United States lost its AAA credit rating from Standard & Poor's.

The downgrade wasn't entirely unexpected, but may have hampered the decent amount of issuance expected for the week. Between seven and 10 deals were on tap as of late Friday, although due to the precarious nature of the market, no one had committed to selling on Monday.

"We had a few calls today," one syndicate source said. "They all decided to wait."

The U.S. credit rating was downgraded one notch by S&P to AA+ from AAA. This was coupled with continuing worry about the economies of European countries, including Spain and Italy, to slam shut the window for new deals that had opened the previous week following the passage of the debt ceiling bill.

If any deals get done on Tuesday, which syndicate sources said on Monday was unlikely, they will probably try to price prior to any announcement from the Federal Reserve Federal Open Market Committee meeting in which some policy changes could be announced.

The bond market is "way too iffy" for anyone to jump in at the moment, the syndicate source said, adding that "it didn't help that [the Dow] was up and down all day."

Sources also said that everyone's trying to figure out who could be the first to jump back into the bond market and build some momentum.

"Everyone's sitting on the sidelines for now," one market source said. "I don't think we'll see anything until at least Wednesday."

Investment-grade bonds widened in trading on Monday on market uncertainty.

The Markit CDX Series 15 North American high-grade index eased to a spread of 115 basis points on Monday from a spread of 103 bps on Friday, according to Markit Group Ltd.

One source said bonds are wider "mostly on the softness in U.S. broker dealers; Goldman, Morgan, they're all getting crushed today."

Bank paper moved out in the secondary market. One trader saw bank and financial paper about 30 bps to 40 bps wider.

"Some BAC bonds were out as much as 75-90 basis points," another trader said of Bank of America Corp.

JPMorgan Chase & Co.'s 10-year notes sold the previous week traded were as wide as 235 bps bid on Monday from 200 bps on Friday, according to traders.

Industrial and utility bonds traded "about 10-20 wider," a trader said.

Coca-Cola Co.'s 10-year notes sold last week also widened about 8 bps in trading.

Overall trading volume stayed flat at less than $9 billion.

Despite the credit rating downgrade, investors flew into longer-term Treasuries as stocks sold off. The yield on the 10-year benchmark Treasury note dropped to 2.31% from 2.56%. The 30-year bond yield fell to 3.65% from 3.84%.

JPMorgan wider

JPMorgan Chase's 4.35% 10-year notes (Aa3/A+/AA-) moved out to 235 bps bid, 220 bps offered in the secondary market on Monday, another trader said.

Another trader saw the notes trading in the 220 bps area on Monday.

The notes were seen at 192 bps bid on Friday.

JPMorgan sold the notes at 175 bps plus Treasuries on Wednesday.

The financial services company is based in New York City.

Coke weaker

Coca-Cola's 3.3% 10-year notes (Aa3/A+/A+) widened to 78 bps bid, 72 bps offered on Monday, a trader said.

The notes due 2021 traded at 70 bps bid, 64 bps offered on Friday. The company sold $1 billion of the notes at 72 bps over Treasuries on Wednesday.

The soft drink company is based in Atlanta.

Bank, Brokers CDS gap out

Banks were wider with Bank of America out 100 to 300,310, a source said Monday. Citigroup was seen 70 wider at 210,220, while Credit Suisse Group was quoted 5 wider at 65.70.

Brokers also gapped out. Merrill Lynch was seen 100 wider at 315,335, Morgan Stanley 78 wider at 278,288 and Goldman Sachs 45 wider at 208, 217.

Paul Deckelman contributed to this review

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