Citigroup plans subordinated notes; sovereigns price; traders see spreads widen on euro woes

By Andrea Heisinger

New York, Feb. 4 - Investment-grade bonds were quiet on both the primary and secondary sides on Monday as euro zone concerns resurfaced.

A sale of Citigroup Inc. subordinated notes by the U.S. Department of the Treasury was announced with pricing expected on Tuesday. The size of the subordinated notes due 2022 is expected to be about $894 million, a source said.

European Investment Bank priced $1.25 billion of notes due 2020, and there was also a small reopening of floating-rate notes due July of 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 at midday on Monday. The source added that there was about $2 billion of trading volume, which was on the small side.

By the close of the day's session, volume was at roughly $7.7 billion and spreads were out about 4 bps overall.

"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 as of midday, 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.

The most active bonds of the day were dominated by bank names, a source said, comprising the top five based on volume.

EIB's $1.25 billion

The European Investment Bank priced $1.25 billion of 1.625% notes due 2020 (Aaa/AAA/AAA) to yield mid-swaps plus 24 bps, or Treasuries plus 39.7 bps, a market source said.

Credit Suisse Securities (USA) LLC, Deutsche Bank Securities Inc. and Morgan Stanley & Co. LLC ran the books.

The lender for the European Union is based in Kirchberg, Luxembourg.

Citi subordinated notes

The U.S. Department of the Treasury is selling $894 million of Citigroup subordinated notes (Baa3/BBB+/BBB+) due 2022, a market source said late in the day.

The notes, which feature a maturity of nine and a half years, are expected to price in Tuesday's session at par with a spread of 4.05%, the market source said. The size was announced early on Monday at about $900 million, the source said. Settlement will be three days after pricing.

Citigroup Global Markets Inc. is 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.

LNW taps floaters

The Land of Nordrhein-Westfalen reopened its issue of floating-rate notes due July 11, 2017 to add $100 million, a market source told Prospect News.

The notes (Aa1/AA-/) were sold at 101.601 with a coupon of Libor plus 70 bps.

Total issuance is $600 million, including $500 million priced on July 3, 2012 at par to yield Libor plus 70 bps.

Deutsche Bank Securities Inc. and J.P. Morgan Securities LLC ran the books.

The German state is based in Dusseldorf.

Banks at high volume

While there was general widening of high-grade bonds on the day, a handful of financial names saw their paper trading at high volume.

Barclays Bank plc topped trading as of mid-afternoon, a source said, as its 7.625% contingent capital bonds due in 2022 were trading at a spread of Treasuries plus 592 bps. The notes sold on Nov. 14, 2012 at 603.7 bps.

This was followed in activity by Bank of America Corp.. which saw its 3.3% notes due 2023 at 153 bps over Treasuries. The bonds were priced on Jan. 8 at 150 bps over Treasuries.

A Goldman Sachs Group Inc. 3.625% note due 2023 was seen at 157 bps over Treasuries. The issue was priced on Jan. 16 at a spread of Treasuries plus 185 bps.

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