Denmark's Vestjysk Bank plans short bond; IG bonds struggle in trading; financials widen

By Andrea Heisinger

New York, June 7 - There were no new issues priced on a sluggish Monday in the high-grade bond market.

Both the new issue and secondary sides of the market were reporting little activity, although the summer slowdown has not officially hit.

There was a deal announced by Denmark-based Vestjysk Bank AS. It plans to price three-year notes later in the week.

There wasn't a particular reason why there weren't bond sales to start the week, but with so many negative headlines floating around, it was a chance to assess the market for issuers, a source said. There are deals expected in the next couple of days.

Among the headlines bringing down the markets a bit were continued worries about the economic health of Hungary, the ongoing oil spill and the subpoena of Goldman Sachs & Co. by the Financial Crisis Inquiry Committee for unspecified documents. There was also word from England that the country would have to enact severe austerity measures as their financial situation was worse than thought.

Investment-grade bonds in general ended the day slightly wider, with financials out about 5 bps and "good name industrials 1 to 2 [bps] wider," a trader said.

"There was low volume, and investment-grade markets in general were marginally wider."

Financial names, like Bank of America Corp. and Citigroup Inc., saw some of their outstanding bonds widen slightly from the previous week. Two bonds from Goldman Sachs Group Inc. were wider than they were late the previous week, likely due to the subpoena news.

Other new bonds priced late last week by International Game Technology, Waste Management Inc. and Oklahoma Gas & Electric Co. also gave back some gains.

The Markit Series 14 CDX showed spreads were about 4 basis points wider than where they ended on Friday, a source said. They were quoted at 130 bps - out from 126 bps at the end of the previous week.

"Until supply comes back, it's going to be quiet in corporates," a source said.

Vesjysk Bank plans short bond sale

Vestjysk Bank announced $500 million of three-year notes, a source said, with pricing expected later in the week.

The notes (Aaa/AAA) will be sold under Rule 144A.

Bookrunners are J.P. Morgan Securities Inc. and Nordea Bank.

The retail and corporate bank is based in Lemvig, Denmark.

Issuers stand down, assess market

New deals were absent from the high-grade market for the second day in a row following disappointing employment figures on Friday and continued negativity from many directions, sources said late on Monday.

That is expected to change in the next couple of days, at least as issuers return.

"We have a few things coming up - nothing too crazy," a syndicate source said. "I think today we were just reacting to Hungary and all the headlines," she said.

"We don't normally print a lot of deals on Monday."

The day was one of assessment and "just a chance to make calls and see where things are," the source said.

Another source at a smaller desk echoed her thoughts and said that there were "deals in the pipeline, for sure." They noted that deal sizes would likely be similar to the previous week, when virtually nothing topped $1 billion and few even went over $500 million.

Goldman bonds struggle on new headlines

Just as bonds from Goldman Sachs Group were rebounding slightly after a civil suit was brought against it by the government, they got hit with a subpoena by the Financial Crisis Inquiry Committee.

Perhaps because of this, the financial's bonds were generically wider by 10 bps to 15 bps for the day, a source said.

Its 5.375% and 6% outstanding bonds were "trading on top of each other" previously at 243 bps, but were wider by as much as 8 bps at different points on Monday, a trader said. At the end of the day, they were quoted at 250 bps. Two of Goldman's other outstanding bonds were quoted between 4 bps and 10 bps wider for the day.

Other outstanding bonds from mega-banks Citigroup and Bank of America were also slightly wider. Two Bank of America notes were between 1 basis point and 6 bps wider, while four bonds from Citigroup were out by 4 bps to 15 bps.

Treasuries make gains over weekend

Treasury yields were tighter generically at the end of the day from where they fell on Friday, a source in that sector said.

The yields on the five-year and 10-year notes as well as the 30-year bond were each about 5 bps tighter. The five-year note, for instance, was quoted at a 1.9% yield, in from 1.95% on Friday. The 10-year note was in 6 bps to 3.14%.

"There was continued risk aversion," a source said.

Stocks were down for the day, and there is $70 billion in supply coming from Treasuries, which may have helped boost the yields.

"Oil is down, stocks are down, the euro's down," the source said. "It's just what happened."

Interest falls in oil bonds

Trading volume in bonds from oil services companies fell a little on Monday as other financial headlines shared the spotlight.

BP Capital Markets plc bonds fell slightly on investor radar and were mostly absent from the day's list of most-active bonds, a source said.

Anadarko Petroleum Corp. had one of the most-traded bonds as of early afternoon with its 8.7% notes due 2019.

A trader said that there was "not much action in [BP bonds] today."

They noted that the oil company's notes had improved a little bit from Friday, when they had moved in slightly after gapping out close to 100 bps.

"When I say they improved, I mean like 5 bps," the trader said.

Another trader said that Transocean Inc.'s bonds were up between ½ a bp and 1 basis point on Monday, although on not much trading volume.

At another desk, a trader quoted its 6.80% bonds due 2038 around an 88-89 context, which he called pretty much unchanged.

Recent bonds give back gains

Three of the most recently priced notes gave back some of the gains they made after pricing the previous Thursday, a trader said late on Monday.

An issue of 5.5% bonds due 2020 from International Game Technology was priced at 220 bps over Treasuries and quoted at a bid of 218 bps, with a 210 bps offer. They were offered at 205 bps on Friday.

The 4.75% bonds due in 2020 from Waste Management were straddling their Treasuries plus 147 bps price at a bid of 152 bps and offer of 143 bps. They had been quoted at 150 bps bid and 146 bps offer on Friday.

Another sale from Oklahoma Gas & Electric hardly moved from where it was quoted in next-day trading. The 5.85% notes due in 2040 were priced at 162.5 bps over Treasuries and trading at 161 bps bid, with an offer of 150 bps. The bid was little changed from the 160 bps they were last quoted at.

Bank, broker CDS costs both rise

A trader who watches the credit-default swaps market said that the cost of protecting holders of bonds issued by major banks, such as Citigroup, Bank of America and JP Morgan Chase, against a possible event of default rose between 8 bps and 15 bps from Friday's levels, a sign of increased investor unease with the sector.

He also saw the cost of CDS contracts to protect holders of bonds from big brokerage companies, like Goldman Sachs and Morgan Stanley, up from 5 to 15 bps on the day.

Paul Deckelman contributed to this report

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