New bonds not expected until January; trading slows; Kraft, Morgan Stanley tighten sharply

By Andrea Heisinger and Cristal Cody -

New York, Dec. 23 - Volume in the investment grade bond market ground to mostly a standstill for much of the day, sources said Wednesday.

"It was so quiet," one trader said. "Nothing much happened. It got very thin very quickly."

For example, according to a source, the CDX Series 13 North American high-grade index was unchanged on Wednesday at a mid bid-asked spread level of 84 bps.

Declining issues outpaced advancers for a third day, while overall market activity, as reflected in dollar volumes, dropped about 40% on Wednesday.

"There was really nothing to speak of going on," one trader said.

Weak housing data narrowed spreads slightly on Wednesday, and Treasury yields were little changed. The yield on the benchmark 10-year Treasury note ended unchanged from the day before at 3.75% on Wednesday. The yield on the five-year note eased 2 basis points to 2.48%.

The Treasury Department announced the sizes of its scheduled auctions of two-, five- and seven-year notes during the last week of the year.

Meanwhile in secondary trading, a source said certain bonds from Kraft Foods Inc. and Morgan Stanley & Co. finished 20 basis points tighter on the day.

Kraft Foods' 6.125% notes due 2018 tightened 20 bps on Wednesday to 140 bps over from 160 bps over the day before.

Despite the slow day, "generally things were better" in secondary trading, a trader said.

Market neutral as holiday nears

High-grade bond issuance continued its vacation on Wednesday, with no new sales expected until possibly the coming week or "most likely January," as a syndicate source said.

"I don't really see anyone doing anything soon," he said.

The market tone was neutral, he said in late afternoon, adding that it was hard to tell if anything had changed due to the lack of sales.

"Tomorrow is basically a non-event," he said. "I don't even think anyone will be working."

SEC preps rule change

A proposed amendment to Rule 163 by the Securities and Exchange Commission could affect some investment-grade bond issuers, although one market source said on Wednesday that it would be hard to tell any repercussions until it actually went into effect.

"It's hard to say," he said. "I guess it could have an impact on the books."

He was referring to the amendment which would allow some companies to talk to more investors. It would let "well known seasoned investors" authorize underwriters or dealers to communicate with investors on their behalf.

"I honestly don't know how much change that would even make," a second market source said.

Spreads tighter in financials

Looking at secondary activity in the financials sector, traders saw a bit more happening on the last full trading day before the Christmas Day holiday.

"The spreads are a little bit tighter," one trader said. "But we're talking about a market that's basically incredibly quiet."

Morgan Stanley's 5.5% two-year bonds tightened by 20 bps to 45 bps over from 65 bps over on Tuesday, according to a market source.

The 7.25% bonds due 2032 from the New York-based financial services company also tightened slightly to 134 bps over Treasuries from 137 bps over on Tuesday. The bonds had tightened 13 basis points from 150 bps on Monday.

In other financial activity, a source quoted Citigroup Inc.'s 5.50% bonds due 2014 also tightening, by 16 bps to 255 bps over on Wednesday.

Citigroup said Wednesday it had repaid $20 billion in government loans to the United States to help end the government's oversight. The bank had sold $17 billion in stock and $3.5 billion in convertible securities to raise capital to repay the funds borrowed under the U.S. Troubled Asset Relief Program.

In addition, the New York financial services company's 8.125% bonds due 2039 also moved on Wednesday. The bonds tightened to 237 bps over Treasuries from 242 bps over on Tuesday. The bonds had tightened 10 bps to 242 bps over from Monday.

Other banks also saw secondary trading activity, according to market sources.

A source quoted Goldman Sachs & Co.'s 7.5% bonds due 2019 as 2 bps tighter to 140 bps over Treasuries from 142 bps over the day before.

Meanwhile, JPMorgan Chase & Co.'s 6.3% bonds due 2019 also tightened 2 bps to 106 bps on Wednesday, according to one market source.

Slow secondary market in industrials sector

Looking at bonds in the industrials sector, it was a snooze fest on Wednesday, according to sources.

"It was a cross between unconscious and comatose, what little you could see," a trader said.

Anheuser-Busch 4.95% notes tighten 10 bps

A source noted that Anheuser-Busch InBev's 4.95% 5-year notes tightened to 98 bps over Treasuries from 108 bps over on Tuesday.

St. Louis-based Anheuser-Busch became a subsidiary of Belgium-based InBev NV in 2008.

Financial CDS levels slightly improved

Also on Wednesday, a trader who watches the credit-default swaps market said the cost of insuring holders of big-bank bonds against a possible event of default declined slightly, by between 1 and 3 bps.

He saw a similar tightening up in the CDS costs for paper from major investment banking houses, down about 1 to 2 bps.

-Paul Deckelman contributed to this report

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