Week’s new issuance beats expectations; spreads edge wider; Verizon bonds improve

By Cristal Cody and Aleesia Forni

Virginia Beach, July 25 – The high-grade bond market closed a mostly positive week on a quiet note on Friday.

The session saw no new deals hit the primary market.

Amid ongoing geopolitical tensions, the week’s new issuance managed to top earlier supply expectations.

The investment-grade primary market saw $18.35 billion of supply price this week, besting predictions of around a $15 billion week.

In other market news this week, Lipper reported inflows of $1.594 billion into corporate investment-grade funds for the week ended July 23, bringing the year-to-date total inflows to around $48 billion.

The previous week had seen $1.637 billion of inflows.

With the Federal Open Market Committee meeting on Tuesday and Wednesday, coupled with Friday’s jobs data, primary activity is likely to be measured in the week ahead.

Around $15 billion of paper is expected to price.

Investment-grade bond spreads edged wider over the day in light activity, according to market sources.

The Markit CDX North American Investment Grade series 22 index was unchanged at a spread of 59 basis points.

Investment-grade trading activity has been thin over the week with several desks lightly staffed due to vacations, a source said.

Verizon Communications Inc.’s bonds (Baa1/BBB+/A-) remained stronger in the secondary market following the company’s announcement it plans to exchange 11 issues for new debt, sources said.

Verizon better

Verizon’s 6.4% notes due 2033 climbed to a high of 125.07 to yield 4.441% on Friday from where the notes last traded in the previous session at 123.81 to yield 4.526%, according to a market source.

The bonds were seen earlier in the day about 10 bps tighter in the 123 bps area, a source said.

Verizon announced late Wednesday that it plans to exchange the bonds for new notes due 2046.

The company sold $6 billion of the notes with a spread of Treasuries plus 250 bps, or 99.9 to yield 6.409%, on Sept. 11, 2013.

Verizon’s 6.55% bonds due 2043 headed out higher at 126.89 to yield 4.822% from 126.83 to yield 4.825% on Thursday, according to a market source.

The bonds are trading near the high of 127.11 set on May 15.

The bonds were quoted over the morning 7 bps tighter at 154 bps offered.

The company plans to exchange the issue for an offering of new notes due 2054. The exchange offers expire on Aug. 19.

Verizon sold $15 billion of the 6.55% notes due 2043 at Treasuries plus 265 bps, or 99.883 to yield 6.559%, in the September transaction.

The telecommunications company is based in New York City.

Bank, broker CDS costs rise

Investment-grade bank and brokerage credit default swap costs rose on Friday, according to a market source.

Bank of America Corp.’s CDS costs were 3 bps higher at 71 bps bid, 74 bps offered. Citigroup Inc.’s CDS costs increased 1 bp to 66 bps bid, 69 bps offered. JPMorgan Chase & Co.’s CDS costs rose 2 bps to 57 bps bid, 60 bps offered. Wells Fargo & Co.’s CDS costs also rose 2 bps to 48 bps bid, 51 bps offered.

Merrill Lynch’s CDS costs were up 3 bps at 75 bps bid, 78 bps offered. Morgan Stanley’s CDS costs rose 4 bps to 70 bps bid, 74 bps offered. Goldman Sachs Group, Inc.’s CDS costs were 2 bps higher at 76 bps bid, 79 bps offered.

Paul Deckelman contributed to this review.

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