High-grades widen amid sovereign worries; Kraft gains; no deals price, week ahead seen slower

By Andrea Heisinger and Cristal Cody

New York, Feb. 5 - Investment-grade bonds were weaker in trading on Friday across most sectors and noticeably in the industrial and financial sectors, according to sources.

One source was "hearing the overall market felt heavy."

In fact, a trader noted there was "light volume" on Friday.

Overall Trace high-grade trading dollar volume fell nearly 12% to just under $11 billion, a market source said.

The high-grade market was "generally about 10 bps wider," a source said, adding that part of the reason could be a "big focus on sovereign markets."

Treasuries tightened on Friday, with the yield on the benchmark 10-year Treasury note firmed 3 bps to 3.57%. In addition, the yield on the 30-year Treasury bond was tighter at 4.52% from 4.55%.

Meanwhile the CDX Series 13 North American high-grade index moved out 2 bps to a mid bid-asked spread level of 101 bps.

Among specific names, the new notes from Berkshire Hathaway Inc. were little changed, while Kraft Foods Inc.'s $9.5 billion of notes tightened throughout the day, according to sources.

Outstanding paper from Bank of America Corp., Morgan Stanley and Citigroup Inc. was generally wider, sources said.

Looking ahead to the upcoming week, traders expect a "light data week," one source said. "Supply and euro sovereign risk are likely to dominate."

New deals were absent from the primary market on Friday as syndicate desks took a break after a blockbuster Thursday with about $18 billion in bonds priced.

The coming week is expected to be quieter after nearly non-stop issuance in the past week.

Primary absorbs deals

There weren't any new bonds in the market Friday, a source said, but that was likely for the best.

"I think everyone just wants to take a breather," he said. "There's a lot to absorb."

The $9.5 billion Kraft Foods Inc. deal that priced late on Thursday after a two-day sale was more than two times oversubscribed, a source who worked on the trade said.

After the first day, before the deal had officially launched, there was about $20 billion in demand on the books. By the time it priced, that had risen to about $28 billion, the source said.

"We had a couple of drops, so it was more like $25 billion," he added.

The Kraft sale was joined by Berkshire Hathaway Inc. pricing an equally impressive $8 billion in six tranches. A source close to that sale would not specify how oversubscribed it was, but did say there was "a lot" of interest in it.

The coming week is expected to see a decrease in volume, syndicate sources said.

A source from a small desk said they had "a few things," and that most of the business would be done on Tuesday and Wednesday.

Another source from a larger syndicate desk said his calendar for the coming week was "not that busy" with "maybe a handful of trades" totaling $10 billion to $15 billion.

It was a widely held belief, however, that there wouldn't be any deals close to the size or scope of Kraft or Berkshire Hathaway.

"We're not going to see anything too crazy," a source said.

Kraft tightens in next-day trading

Kraft's new $9.5 billion of senior unsecured notes (Baa2/BBB-/BBB-) firmed in secondary trading on Friday, one trader said.

The notes "all tightened in nicely."

Kraft's 4.125% notes due 2016 tightened 4 bps over the day to 170 bps bid, 178 bps offered. The notes priced at Treasuries plus 190 bps on Thursday.

Also, the 5.375% notes due 2020, which priced at Treasuries plus 190 bps, firmed to 175 bps bid, 174 bps offered.

In addition, the 6.5% notes due 2040 also were seen tightening to 191 bps bid, 190 bps offered after pricing on Thursday at Treasuries plus 205 bps.

Northfield, Ill.-based Kraft plans to use the proceeds to finance its acquisition of Cadbury plc.

Meanwhile, Kraft's existing 6.125% notes due 2018 were seen tighter at 174 bps on Friday from 176 bps on Thursday.

Berkshire little changed

Berkshire Hathaway's $8 billion of senior unsecured notes did not move much on Friday, according to a source.

For example, the 1.4% notes due 2012 were seen tighter by 2 bps at 61 bps on Friday, while the 3.2% notes due 2015 were unchanged at Treasuries plus 93 bps.

The two-year notes priced at 63 bps over Treasuries on Thursday.

Omaha, Neb.-based Berkshire Hathaway priced the deal in six tranches on Thursday to help fund the cash portion of its acquisition of Burlington Northern Santa Fe Corp.

Financials weaker

The financials sector was weaker in line with the market overall on Friday, according to sources.

For example, Charlotte, N.C.-based Bank of America's 6.5% notes due 2016 widened 20 basis points to 152 bps over on Friday from the day before, one source said.

Also, Citigroup's 6.375% notes due 2014 were wider 18 bps at 279 bps.

New York-based Citigroup's 8.5% notes maturing 2019 also were weaker by 8 bps at 260 bps over.

Elsewhere in the sector, New York-based Morgan Stanley's 5.625% notes due 2019 widened 22 bps to 209 bps, according to a source.

Dow paper wider

Dow Chemical Co.'s outstanding notes were weaker in Friday trading, a source reported.

The 7.6% notes due 2014 were seen closing at 175 bps from 155 bps on Thursday.

In addition, Dow's 8.55% notes due 2019 widened 12 bps to 232 bps over.

The Midland, Mich.-based company manufactures and sells chemicals, plastics and agricultural products.

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