Primary sinks on market swings, trouble overseas; issuance eyed late week; Goldman, Hartford active

By Andrea Heisinger

New York, Oct. 6 - Those on the syndicate desks in the investment-grade primary were cautiously optimistic Monday as the markets sunk on continued credit worries.

Despite current conditions, it is possible issuers could return to the market later this week, a source said.

The secondary market remained quiet, with financial names dominating trading.

Credit, stocks hurt primary

The primary market was quiet Monday as it absorbed several new developments, including the worsening credit crisis, the drop in world stock markets and the spread of the financial crisis overseas.

Those in the primary market continued to monitor headlines and keep potential issuers updated on conditions.

"We were mostly just looking at the swing in the market," a source said. "It [the Dow Jones Industrial Average] was down by like 800, but then there was a late [day] rally."

Sources were more optimistic to begin the week than at the end of the day Friday when the coming week was described as "bleak."

This week likely won't be as slow as previous weeks, a market source said, adding that it won't be like the last couple of weeks that had little to no new deals.

"I think we'll see people coming to the market later in the week," he said. "It all depends on the market tone."

As Europe, Asia, and countries worldwide dealt with their own deepening financial and credit crises, the fluctuations in the Dow and other U.S. markets were what the investment-grade primaries were mostly watching.

The conditions, however bleak, were not overly surprising for one market source.

"Historically, October is always a bad time of year," he said. "Looking back seven years it's always been kind of bad, and then things rebound in November."

He couldn't guess whether that would be the case this year, as the financial worries continue to worsen.

In an effort to stem the credit freeze among banks and other lenders, the Federal Reserve raised the limit of credit to banks to $900 billion.

But neither that move, nor Congress passing the financial bailout bill last week, were enough to stop the meltdown of the markets.

"I think we're in for a ride," a source said.

It's too early to see any effect of the bailout, he said, and it probably won't be evident for a while.

Although new issues are expected at the end of the week, it's highly unlikely they'll be of the multi-billion-dollar, multi-tranche variety.

"I don't think we'll be seeing any size increases," a source said. "They're going to be smaller deals."

Union Pacific bonds widen

The issue of 7.875% notes due 2019 from Union Pacific Corp. was seen widening slightly to 395 basis points offered Monday. There was no bid, a source said.

This was slightly wider than Friday's level of 394 bps bid, 388 bps offered. The notes priced Thursday at Treasuries plus 425 bps.

Financials down on merger

Citigroup, Wachovia and Wells Fargo were all seen weaker Monday after a weekend spent in a legal fight over buyout rights.

On Friday, after it was announced that Wells Fargo intended to buy all of Wachovia, instead of Citigroup's partial buyout plan, Wachovia and Wells Fargo bonds were wider. Citigroup's were mostly unchanged.

GE maintains high volume

General Electric Capital Corp. stayed at the top of the most-traded bonds list with its 5.25% notes due 2009 seen on top Monday afternoon.

This came days after a $3 billion investment from Berkshire Hathaway Inc.

Also nearing the top in trading was Morgan Stanley & Co. Inc. Its 6.625% notes due 2018, 4% notes due 2010 and 5.05% notes due 2011 were seen high on the trading list. This comes after the former investment bank announced its switch to a commercial bank.

Bank CDS widen

Bank credit-default swaps were seen 4 bps to 10 bps wider Monday afternoon, a trader said.

Among the new bank holding companies, Morgan Stanley's debt protection costs rose by 5.5 to 6.5 percentage points in the up front costs, to 19% to 20% annually, plus 500 bps annually.

Similar broker names, like Goldman Sachs and Merrill Lynch, were seen 45 bps wider.

Goldman's 6.875% bonds due 2011 were seen as one of the day's biggest movers, widening more than 120 bps.

Hartford Financial tighter

Hartford Financial Services Group Inc. was seen tightening sharply on the news that it was getting a $2.5 billion investment from Germany's Allianz SE.

Hartford's 6.3% bonds due 2018 were seen about 160 bps tighter.

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