Primary market quiet; Express Scripts bonds strengthen; high-grade investors grab long bonds

By Andrea Heisinger

New York, June 5 - The investment-grade primary market seemed especially barren Friday after the previous consistently busy days of the past week.

There was no reason having to do with market tone that scared issuers away, a market source said, instead attributing the slowdown to a "market breather."

"We've been pretty busy," he said.

Much of the high-grade action was in the secondary bond market. A trader quoted levels on many of Thursday's non-financial deals as significantly tighter.

The best performing was perhaps Express Scripts Inc.'s three-tranche sale, all of which came in 60 bps or more. New bonds from Harris Corp. and Bunge Limited Finance Corp. were also quoted significantly better.

Apart from all of the recent new bond activity, an outstanding issue from Rio Tinto Finance plc was high in trading after it pulled out a financing deal.

Spreads were significantly tighter by the end of Friday as Treasury yields widened. One of the worst offenders was the five-year note, which was 25 basis points wider. The 10-year note was out 13 bps.

New-deal run to continue

The high level of issuance should continue in the coming week, provided market conditions hold, a source said late Friday.

"We have a few things on the calendar - nothing too exciting," he said. "I think others away have at least a couple of things to bring."

As always lately, "nothing's set in stone," a syndicate source said.

The lack of sales Friday wasn't unexpected, the source said. "It was Friday, and I think everyone was just tired from the rest of the week. We'll see more, maybe Monday, maybe Tuesday."

Express Scripts spreads contract

The new $2.5 billion three-tranche sale from Express Scripts was greatly tighter in trading late Friday, a trader said.

The sale priced too late Thursday to get to the secondary.

The 5.25% bonds due 2012 were in 75 bps to 80 bps from their price of Treasuries plus 375 bps. They were quoted at 303 bps bid, 295 bps offered.

This was similar to where the 6.25% bonds due 2019, also priced at 375 bps over Treasuries, were trading. They were seen at 305 bps bid, 290 bps offered, the trader said.

The third tranche of 7.25% notes due 2019 sold at Treasuries plus 362.5 bps and was quoted at 305 bps bid, 290 bps offered.

When asked why they tightened so dramatically across the board, the trader said "they priced way too cheap."

Harris 2019 in 35 bps

The new 6.375% notes due 2019 from communications and information technology company Harris was about 35 bps better in trading late Friday, a trader said.

It priced at Treasuries plus 275 bps and was trading at 240 bps bid.

Bunge bond in nicely

As most of the other bonds did, the new bond from Bunge Limited Finance was about 40 bps to 50 bps better than its original price, a secondary source said.

The 8.5% bond due 2019 was quoted at 440 bps bid, 430 bps offered, he said. The bond sold at Treasuries plus 479.4 bps.

Another trader had quoted the bond at 425 bps bid Friday morning, showing it had lost gains throughout the day.

Yara bond tightens

Yara International ASA's 7.875% bond due 2019 sold at 424.6 bps over Treasuries, and a trader said it was in the secondary at 295 bps bid, 370 bps offered.

Yara is a Norwegian plant fertilizer company.

Rio Tinto, B of A top trading

Rio Tinto Finance was at the top in trading early Friday afternoon, along with two bonds from Bank of America Corp.

Rio Tinto's recent 8.95% bond due 2014 was the most-traded, a trader said. This may have had something to do with news the previous day that the mining company nixed a deal with Chinalco worth $19.5 billion. Instead, the company plans to bolster its finances with a $15.2 billion share sale and a venture with BHP Billiton.

Bank of America saw two of its bonds, which were issued without the backing of the Federal Deposit Insurance Corp., rocket to the top in trading.

Its 7.625% bonds due 2019 and 7.375% bonds due 2014 were popular. The name is among other large banks such as Goldman Sachs & Co. and Citigroup Inc. that are pushing to pay back the government for its bailout funding.

Investors grab long bonds

The secondary market, at least on the non-financial side, was "very quiet" late Friday, a trader in that sector said.

It was a welcome break after a busy week where the focus was mostly on the new deals hitting trading.

Among the most popular issues were 30-year bonds.

"Everybody's grabbing the long, high-grade paper," he said.

Bank, broker CDS mixed

Bank and brokerage names were mixed as far as credit-default swap costs late Friday, a trader said.

The broker/investment bank CDS costs were 5 to 10 bps better, while bank names were 3 bps tighter to 5 bps wider, he said.

Lexmark, Credit Suisse bonds move big

Outstanding bonds from Lexmark International and Credit Suisse were two of the day's biggest movers from a week ago.

A 6.65% bond due 2018 from Lexmark was in nearly 60 bps from the previous week. The previous level was before an analyst at Barclays Capital upgraded the printer company, sending its shares higher.

A 6.125% bond due 2011 from Credit Suisse was only slightly worse - about 8 bps - than a week ago. This may be related to news out that a former broker for the Swiss bank, who was set to go on trial for fraud, has been labeled a fugitive after disappearing before his trial.

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