Week ends on down note; earnings cloud October volume estimates; Bank of America widens

By Andrea Heisinger and Cristal Cody

New York, Sept. 30 - New issues were absent from the investment-grade bond market as the third quarter and month of September ended on Friday.

As it did for a good part of the past month, the primary side of the market saw its tone slide down to end the day on headlines out of the euro zone and some disappointing economic data.

The stock markets ended the day with a drop on news of inflation in the euro zone and consumer spending data that didn't meet expectations.

October is expected to have at least the same amount of issuance than September, which was slower than expected, sources said.

"No one needs to go on Monday," a market source said of the coming week. "We're not going to see any opportunistic issuance."

The end to the week wasn't pretty as "it was ugly in equities today," the source said. "Hopefully it gets better in the next couple days."

Earnings blackout is coming, and that could further hamper issuance in October. Estimates for the month are between $40 billion and $45 billion in new debt sold.

"We just don't know what it's going to look like with this whole euro zone thing," a syndicate source said of the coming month.

Secondary spreads ended wider on Friday. The Markit CDX Series 17 North American high-grade index eased 4 basis points to a spread of 144 bps.

Bank of America Corp.'s paper continued to trade "all over the place," one trader said. "Need a strong stomach to buy that stuff."

Other financial paper also was weaker on the week, including Morgan Stanley's notes, traders said.

"Names like Bank of America, Morgan Stanley, Goldman Sachs, everything continues to get cheaper," a trader said.

Also in the secondary market, Caterpillar Financial Services Corp.'s notes traded about 5 bps tighter.

Overall trading volume fell more than 10% to about $10 billion on Friday.

Treasuries were stronger as investors moved into safer haven debt on the European debt situation ahead of the weekend. The benchmark 10-year note yield fell 7 bps to 1.92%. The 30-year bond yield dropped to 2.91% from 3.05%.

Bank of America widens

On Friday, Bank of America's 6.5% notes due August 2012 were seen in "three offerings today [to yield] 5%, 5.2% and 5.4% - that's a big move for one-year paper," the trader said.

Bank of America's 4.875% notes due September 2012 on Friday traded to yield 4.26%, 4.5% and 4.75% offered throughout the day, the trader said.

On the longer end, the bank's paper also moved out in the secondary market.

The 5% notes due 2021 traded going out Friday at 460 bps offered, a trader on another desk said.

"This morning, they were offered at 450 [bps], so it's already wider again by 10 [bps]," the trader said. "Yesterday when I checked them, it was 435 [bps] and the day before that, 420 [bps]."

The bank is based in Charlotte, N.C.

Morgan Stanley weakens

Morgan Stanley's short-dated notes also moved out in trading on Friday.

The 5.3% notes due April 2013 traded at 390 bps offered on Thursday and on Friday widened to 445 bps offered, a trader said.

Morgan Stanley's 5.5% notes due 2021, which priced on July 21 at 250 bps over Treasuries, traded on Friday at 460 bps, another trader said.

"That's just since the end of July, it's widened to 460 [bps]," the trader said. "You can see how the spread widening has very much mirrored the sell-off in the stock market."

The investment bank is based in New York City.

Toronto-Dominion Bank flat

In the secondary market, Toronto-Dominion Bank's 0.875% notes due 2014 were seen offered at 60 bps on Friday, a trader said.

The notes were priced on Sept. 7 in a C$2 billion tranche at a spread of Treasuries plus 58.4 bps.

In other trading, TD Bank's 2.5% senior medium-term notes due 2016 traded flat on the week at 110 bps bid, 100 bps offered, another trader said.

Toronto-Dominion Bank sold $1.25 billion of the notes on July 7 at Treasuries plus 85 bps.

The bank and financial services company is based in Toronto.

CDS costs widen

Bank and brokerage credit default swaps costs widened again on Friday, a source said.

Citi's CDS costs were 20 bps higher at 310 bps bid, 320 bps offered. Wells Fargo's CDS costs were 5 bps wider at 155 bps bid, 165 bps offered.

On the brokerage side, Morgan Stanley's CDS costs widened 25 bps to 475 bps bid, 485 bps offered. Goldman Sachs' CDS costs were 22 bps wider at 320 bps bid, 335 bps offered. Merrill Lynch's CDS costs rose 14 bps to 460 bps bid, 480 bps offered.

Caterpillar firms

Caterpillar Financial Services' 2.05% medium-term notes due 2016 traded tighter at 95 bps over Treasuries on Friday, a trader said.

"That's a name that is somewhat bullet-proof," the trader said. "Caterpillar, John Deere and single A-rated names of that ilk are holding up well."

The company reopened its 2.05% medium-term notes due 2016 (A2/A/A) to add $250 million priced at a spread of Treasuries plus 100 bps.

The financing arm of heavy equipment maker Caterpillar is based in Nashville, Tenn.

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