Primary tone still poor, mix of deals seen in week ahead; financials off more; Dow, Roche lose

By Andrea Heisinger and Cristal Cody

New York, Jan. 22 - The investment-grade secondary was weaker Friday, led by financials on Friday as the market awaits new offerings, sources said.

"All of the financials are generally weaker," one trader said. "There's definitely a hangover from yesterday's Obama speech. It's got kind of a heavy feel. The volume's decent but not really heavy."

On Thursday, president Barack Obama offered proposals to limit the size and trading activities of financial institutions as a way to reduce risk-taking and prevent another financial collapse.

According to a market source, overall Trace volume in high-grade trading fell about 6% to $13 billion versus Thursday.

The CDX Series 13 North American high-grade index was "wider today by at least 5 bps," a trader said.

The index eased 8 bps to a mid bid-asked spread level of 96 bps on Friday.

Meanwhile Treasuries also eased Friday. The yield on the 10-year Treasury note was weaker by 2 bps to 3.61%, while the yield on the 30-year Treasury bond gave up 4 bps to 4.53%.

"There's just been a general feel of people waiting for new issues," the source said.

Meanwhile on Friday, high-grade trading in several sectors including industrials and financials finished weaker for a second day, notably impacting General Electric Capital Corp.'s notes priced earlier this month and the new offering this week from Morgan Stanley, sources said.

In addition, high-grade bonds from Dow Chemical Co. and Swiss biotech company Roche Holding AG also widened on Friday.

New deals were mostly absent from the primary market as the tone remained weak following a drop the previous day.

A market source said a $350 million deal of one-year floating-rate senior bank notes was priced by Bank of America Corp., but terms were not available at press time. Bank of America Merrill Lynch ran the books.

The coming week is not expected to have a rush of new deals, as many U.S.-based companies and banks remain in earnings blackouts.

Primary slows

The primary market saw little in the way of new deals on Friday as a hangover from headlines Thursday persisted. News that regulations on large banks could be put in place put a damper on the market that didn't let up a day later.

"It was definitely weaker today," a market source said in late afternoon.

The coming week is expected to have a mix of issuers, but not a lot of deals.

One source from a large syndicate desk said they had "little to none" in the way of bond deals on the calendar for the coming week.

"There are not a lot of industrials out there," he said, citing continuing earnings announcements and blackouts.

"There could be some stuff in the bank and financial space. I don't really know."

A source from another small desk said on Friday that they have "a couple of deals in the industrial space," but nothing exciting.

Volume is expected to be low in the foreseeable future as earnings continue to come out.

"It wasn't too stellar today," a source said of the tone. "Maybe the weekend will help."

Dow, Roche widen

Secondary trading in industrials was a "little wider" on Friday, a source said.

"Dow was off more than 5 basis points and Roche was off 5 basis points. Thanks to our president."

Midland, Mich.-based Dow Chemical's 8.55% bonds due 2019 were seen at 222 bps late Friday down from 228 bps earlier in the day, according to a source.

Several sources on Friday said the markets showed setbacks after Thursday's press announcement by president Obama.

"This widening could continue to pressure spreads," one trader said.

Morgan Stanley 2015 notes active

Also on Friday, Morgan Stanley's new notes due 2015 widened in secondary trading.

New York-based Morgan Stanley priced $4 billion of notes on Thursday, including 4.1% notes due 2015 at a spread of Treasuries plus 175 bps and 5.5% notes due 2020 at 190 bps over Treasuries.

Morgan Stanley's notes due 2015 were quoted closing in the "185, 187 area."

The notes due 2020 were seen "closing around 190, 192," a trader said late Friday.

"There's an awful lot of activity in the five-year paper, more so than the 10-years," the trader said.

Electricite de France tightens

On the other hand, Electricite de France SA's new 10- and 30-year tranches tightened on Friday, a day after the French utility priced the notes, a source said.

The notes due 2020 were seen early Friday at 111 bps bid, 107 bps offered after the notes priced on Thursday at Treasuries plus 105 bps.

Also, the bonds due 2040, which priced at Treasuries plus 115 bps, were seen at 121 bps bid, 117 bps offered.

GE Capital widens

One source said Friday that although General Electric Co. beat earnings estimates, it wasn't enough to prevent a downturn in trading in General Electric Capital's bonds.

"GE's issues were active today," the source said. "Spreads were wider this morning."

GE Capital's recently priced notes "overall were 7 to 15 bps wider, despite good earnings," a trader said Friday.

GE Capital's 2.8% notes due 2013 were seen widening Friday to 150 bps bid, 141 bps offered from 137 bps bid, 135 bps offered the day before.

The notes priced at Treasuries plus 130 bps earlier this month.

In addition, GE Capital's 5.5% notes due 2020 widened more than 15 bps to 185 bps from 202 bps bid, 200 bps offered on Thursday, the source said. Those notes also priced earlier this month at 180 bps over Treasuries.

The Fairfield, Conn.-based company provides financing for General Electric.

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