Market seen quiet ahead of holiday; FDIC issues likely in coming week; secondary firms again

By Andrea Heisinger and Paul Deckelman

New York, Dec. 24 - Reports that unemployment is at a 26-year high and consumer spending is down were having little to no effect on the investment-grade bond market Wednesday.

Companies were not planning on issuing anyway, a market source said, and it was hard to gauge whether it scared away any potential issuers.

In the secondary market Wednesday, advancing issues continued to lead decliners, by a three-to-two ratio. Overall market activity, reflected in dollar volumes, plunged by 77% from Tuesday's pace.

Spreads in general were seen little changed, in line with steady Treasury yields; for instance, the yield on the benchmark 10-year issue remained at 2.18%.

NY Community Bank announces terms

New York Community Bancorp Inc. and its subsidiary New York Community Bank each announced terms for their deals backed by the Federal Deposit Insurance Corp. Temporary Liquidity Guarantee Program.

New York Community Bancorp priced $90 million of 2.55% senior notes due 2010.

The subsidiary New York Community Bank priced $512 million 3% three-year senior notes.

Both were announced in an 8-K Securities and Exchange Commission filing.

More FDIC deals expected

Upcoming regular corporate issuance is uncertain for the next week, but there could be some FDIC deals done, a source said.

"No one knows any names or anything, but it's possible," he said.

General Electric Capital Corp. is expected to tap the guaranteed bonds again in January, a source said earlier in the week.

The financing arm of GE has already done one issue under the program, and reopened it several times.

"I think we'll start seeing more small names, like more regional banks," he said.

Many of those that have previously issued were bank holding companies, with the exception of GE Capital and John Deere Capital Corp.

One or two FDIC-backed issues were expected this week, but did not materialize Monday.

A source said that it wasn't because of market conditions that no one issued, but thin syndicate desks and people on vacation at potential issuers.

No trades

A secondary trader - reached just as he was "walking right out the door" - said that he had not done "a single trade today - and I don't think that too many people have."

Another trader echoed those sentiments, calling the investment-grade market "very quiet," with only thin volume, and added that whatever activity was going on "was just people cleaning stuff up" in preparation for the end of the year.

New FDIC issues continue to tighten

One of the few areas of activity seen around was the continued tightening of recently priced financial-sector notes which came to market bearing FDIC guarantees.

Perhaps the busiest of these was Regions Bank's 2.75% notes due 2010. A market source saw nearly $70 million of the bonds trading, quoting them at a spread over comparable Treasury issues of 87 bps - only slightly tighter than the 88 bps bid at which those bonds were seen trading Tuesday, when there was much less volume. However, the bonds had gotten as tight as 77 bps bid on Monday, the source said. Even with that slight widening since then, though, the bonds are still well in from 182.75 bps spread at which the Birmingham, Ala.-based regional lender priced $1 billion of those bonds on Dec. 8, as part of a four-part offering.

Another fairly active newbie was PNC Funding Corp.'s 2.30% notes due 2012, which were trading at 85 bps bid, versus the 133.2 bps spread at which the Pittsburgh-based regional lender had priced $2 billion of those bonds at on Dec. 17, as part of a three-part deal. Over $53 million of the bonds changed hands. PNC's 1.875% notes due 2011, which had priced at 119.6 bps over in that same deal, were trading around at 89 bps over on Wednesday.

Goldman Sachs Group Inc.'s 3.25% notes due 2012 were another active name, with about $33 million traded, although the bonds widened a little to 79 bps over Treasuries, a source said, versus 75 bps on Tuesday. However, those bonds are still well in from the 200 bps over spread at which the New York based investment bank-turned commercial banking giant had priced its $5 billion of bonds on Nov. 25.

However, General Electric Capital Corp.'s new 3% notes due 2011 traded Wednesday at 87 bps over on volume of about $24 million - out from the 67 bps spread at which those bonds had traded on Tuesday. But that was still well in from the 212 bps over level at which the Fairfield, Conn.-based financial arm of industrial conglomerate General Electric Co. priced $3.5 billion of the bonds on Dec, 4, as part of a $6.5 billion, four-tranche mega-deal.

Among the not-strictly financials who brought paper to market recently under the FDIC facility, John Deere Capital Corp.'s new 2.875% notes due 2012 were seen trading at 81 bps over Wednesday, on nearly $50 million of turnover. That's about 10 bps tighter than the levels the bonds held on Tuesday, and more than 100 bps tighter than the 184.9 bps over level at which the Reno, Nev.-based financing arm of farm equipment maker Deere & Co. priced $2 billion of the bonds on Dec. 16.

Recent HP, Disney bonds hold gains

Apart from the FDIC deals, Hewlett-Packard Co.'s 6.125% notes due 2014 were seen by a market source having widened about 5 bps on the day to around the 320 bps level. However, at another desk, those bonds were being quoted in the 320s, about 10 bps tighter on the day. Those bonds continue to hold most of the strong gains they've notched since Dec. 2, when the Palo Alto, Calif.-based maker of computer equipment and peripherals like printers priced its $2 billion issue at 460 bps over.

And Walt Disney Co.'s 4.50% notes due 2013 were being quoted at 267 bps over, about where they were earlier in the week, but still well in from the 337.5 bps spread at which the Burbank, Calif.-based movie, broadcasting and theme park company priced its $1 billion of bonds on Dec. 17.

Marathon Oil gains, Cisco off

Among the more established issues, Marathon Oil Corp.'s 5.90% notes due 2018 were seen to have undergone a major tightening, in about 75 bps on the session to about the 575 bps level. GE Capital's old 5.72% notes due 2011 were quoted nearly 50 bps tighter, at about the 430 mark.

On the downside, a source said that Cisco Systems Inc.'s 5.25% notes due 2011 were a big loser, about 50 bps wider near the 200 bps mark.

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