Hydro-Quebec sells $1 billion; tone takes further tumble; Bank of America paper cheapens

By Andrea Heisinger and Cristal Cody

New York, Aug. 19 - The high-grade bond market was quiet for the second day in a row Friday with one new deal from Hydro-Quebec.

The government-owned electric company sold $1 billion of notes due 2016.

There was no rebound from the hit that market sentiment took on Thursday, a source said, adding that it was worse at the close on Friday.

After the stock market tumbled on fears from European banks and the economy worldwide, bond issuers backed off even though there remained names on the sidelines looking to price debt.

"It's going to be quiet," a syndicate source said of Monday and the coming week in general. "We maybe have three [deals] or so."

Other desks reported they had talked to some potential issuers but no one was committing to pricing bonds at the top of the week unless conditions improved.

"It's still rough out there," one of these sources said.

The Markit CDX Series 16 North American high-grade index ended Friday 6 bps weaker at a spread of 123 bps.

Bank of America Corp.'s paper has moved out in trading over the last two weeks but recovered some ending the week on Friday, a trader said. Trading in Bank of America's subordinated perpetual notes, which is comparable to preferred stock, also has been active.

"It was in almost total panic mode last week. It's much better this week but still much cheaper than it was two weeks ago," a trader said. "But at least now, there's two-sided flow."

Other financial paper also traded wider going out Friday.

"The financial sector continues to weaken," one source said.

General Electric Capital Corp.'s benchmark notes also eased in trading.

Overall trading volume dropped to less than $10 billion on Friday.

Treasuries rose moderately on Friday at the short and long ends of the curve, with the 10-year benchmark note yield flat at 2.06%. The 30-year bond yield fell to 3.39%.

Hydro-Quebec sells $1 billion

Hydro-Quebec sold $1 billion of 2% global notes (Aa2/A+/AA-) due 2016 at 99.981, according to a news release from the issuer.

Bank of America Merrill Lynch, HSBC Securities (USA) Inc., National Bank of Canada Financial and RBC Capital Markets LLC were the bookrunners.

The notes are guaranteed by the Province of Quebec.

The government-owned electric company is based in Montreal.

RBC sells $50 million

In other offerings, the Royal Bank of Canada sold $50 million in a non-syndicated U.S. offering of 0.461% fixed-rate deposit notes due March 4, 2013 at par, according to final terms.

Credit Suisse Securities (Europe) Ltd. was the dealer.

The notes (Aa1/AA-/) were sold under the company's $40 billion securities issuance program.

Application has been made to list the notes on the London Stock Exchange effective Aug. 23.

The financial services company is based in Toronto.

Bank of America cheaper

In the secondary market, Bank of America's 5% notes due 2021 (A2/A/A+) traded Friday at 375 bps bid, 365 bps offered, double what they priced at in May, a trader said.

"Last Friday, they were 355 [bps], so a little wider, but it's easier to get bids," the trader said.

The notes were sold on May 10 at 185 bps over Treasuries.

Bank of America's 5.63% subordinated perpetual notes (Baa3/BB+), which are comparable to preferred stock, also have been trading actively.

"You could buy this bond at 63 cents on the dollar, pick up a 5.63% coupon that's a current yield of 8.93% - a huge current yield for a name like Bank of America," the trader said. "This is considerably more risky paper than the senior unsecured or the regular subordinated bonds; both would come in line before any of this would get a payout."

In addition, the subordinated perpetual paper gives the company the ability to allow suspension of interest rate payments without going into default, which makes it similar to preferred stock, the trader noted.

The financial services company is based in Charlotte, N.C.

GE Capital weaker

General Electric Capital's 4.625% notes due 2021 traded Friday out to 214 bps bid, 204 bps offered. A week ago, the bonds were seen at 196 bps offered.

The company sold the notes on Jan. 4 at a spread of 135 bps over Treasuries.

The financing arm of General Electric Co. is based in Fairfield, Conn.

Bank, brokerage CDS widen

A source said Bank of America's cost of credit-default swaps contracts were the widest on Friday, out 12 bps. JPMorgan bank CDS contracts were the tightest on the day, 3 bps firmer.

Brokers were seen wider also; the cost for Merrill Lynch was 12 bps wider, and the cost for Morgan Stanley was 5 bps wider.

Paul Deckelman contributed to this review

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