High-grade bond market muted, tone positive; Yankee bonds on tap; Goldman notes tighter

By Andrea Heisinger and Cristal Cody

New York, July 23 - The investment-grade bond market was quiet again on Friday after two days of decent issuance in the midst of earnings season.

There were no new bonds priced, sources said.

"There just wasn't much supply left," one source added.

Headlines also weren't helping things to end the week. Stress tests of 91 European banks found that seven of them wouldn't fare well in harsh economic conditions.

Also, crews had to abandon work on the BP plc oil spill in the Gulf of Mexico with the onset of a tropical storm.

Regardless, there likely wouldn't have been much new issuance for the day anyway, the source said.

The coming week is expected to have a similar number of high-grade bond issues, meaning it will be quiet again.

"I see it being slow," the source said.

Secondary trading pushed the 6% notes that Goldman Sachs Group, Inc. reopened earlier this week tighter on Friday, according to sources.

Also in trading, the industrial sector was stronger, according to a source.

Investment-grade trading overall was lighter on Friday, but the "market tone was positive," a source said. "It's a slow Friday."

Overall investment-grade Trace volume fell 36% to just under $8 billion, a source said.

The CDX Series 14 North American investment-grade index was tighter by 6 basis points for a spread of 106 bps, according to a source.

In Treasuries, government debt dipped on Friday after the majority of European banks passed stress tests, boosting market confidence overseas, and following stronger corporate earnings that helped stocks to rally.

The yield on the 10-year benchmark Treasury note rose 6 bps to 2.99%. The yield on the 30-year bond rose to 4.02% from 3.95%.

Moderate issuance ahead

If market conditions hold on Monday, there could be some issuance right off the bat for the week, a source from a large syndicate desk said late Friday.

There could be some Yankee bank supply, she said, "now that the [European bank] stress test stuff is done with."

The market has some time to digest the news over the weekend and will reassess on Monday morning.

None of the coming week's trades are expected to be anything "too crazy," a source said. There could be one or two banks issuing, although some of the larger names like Goldman Sachs, Morgan Stanley and JPMorgan Chase & Co. already issued after second-quarter earnings announcements.

Citigroup Inc. and Bank of America Corp. are possibilities for sales, the source said.

A deal on Thursday from US Bancorp encouraged some in the financial sector because of its low rates.

"When you see the US Bank coupon [of 2.45%], you're like wow, that's really good," the syndicate source said.

The coupon was on the Minneapolis-based bank's $1 billion sale of five-year notes.

Yields "popped up a little bit today," she said, but were still attractive.

Goldman tighter

Goldman Sachs' notes were tighter and active in secondary trading during the day, according to sources.

The 6% notes due 2020 that Goldman reopened earlier in the week were seen early afternoon on Friday at 211 bps. On Thursday, the notes (A1/AA) were quoted trading at 216 bps over Treasuries.

Goldman Sachs reopened the notes to add $750 million on Wednesday. The notes priced at Treasuries plus 230 bps.

The financial services company is based in New York City.

Industrials stronger

The industrial sector ended the day stronger, a trader said. "Spreads are better."

For example, Dow Chemical Co.'s investment-grade debt was better in secondary trading, according to a source.

Dow Chemical's 7.6% notes due 2014 (Baa3/BBB-) firmed 5 bps to 220 bps on Friday. Also, Dow Chemical's 8.55% notes due 2019 (Baa3/BBB-) were seen trading stronger at 222 bps late in the day, compared to 228 bps the previous session, the source said.

The chemical and plastics manufacturer is based in Midland, Mich.

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