Midday Commentary: Treasury to sell Citigroup notes; spreads weaken in trading on euro concerns

By Andrea Heisinger

New York, Feb. 4 - The investment-grade bond market was quiet in both the primary and secondary sides on Monday as concerns about the euro zone resurfaced.

An offering of Citigroup Inc. subordinated notes by the U.S. Department of the Treasury was announced, with pricing expected on Tuesday.

There was also a small reopening of floating-rate notes due July 2017 by Germany's Land of Nordrhein-Westfalen.

The primary is expected to have moderate volume of $10 billion to $15 billion for the week as more earnings announcements are made, sources said.

In the secondary, a trader said that the Markit CDX North American Investment Grade index showed spreads about 3 basis points wider overall on Monday morning. They added that there was about $2 billion in trading volume, which was on the small side.

"It's pretty quiet out there," the trader said. "Not sure if it's a Super Bowl hangover or what."

A 1.2% note due 2016 sold on Jan. 31 by Carnival Corp. was seen at a bid of 73 bps over Treasuries, which was tighter than its initial price of 80 bps but a bit wider than a quote of 70 bps over Treasuries early Friday.

The cruise line operator announced earnings on Monday morning that were weaker than analysts expected.

The high-grade market wasn't alone in starting off the week on a down note.

"Stocks are weaker; everything's weaker," a source said. "Euro problems are percolating again - not that they ever went away. Everything's traded down, and we're oversold, overtired."

The trader noted that on the run 10-year Treasury bonds in Spain were 23 bps wider at midday Monday, and the same maturity in Italy was seen widening 14 bps.

Citigroup notes offered

The U.S. Department of the Treasury is selling Citigroup subordinated notes (Baa3/BBB+/BBB+) due 2022, a market source said.

The notes, which feature a maturity of 9.5 years, are expected to price in Tuesday's session with a size of about $900 million, the source said. Settlement will be three days after pricing.

Citigroup Global Markets Inc. is the global coordinator. Active bookrunners are Deutsche Bank Securities Inc., Goldman Sachs & Co., J.P. Morgan Securities LLC, UBS Securities LLC and Wells Fargo Securities LLC.

The financial services company is based in New York City.

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