Primary quiet; investors, issuers wait for price data; secondary slightly better, financials eyed

By Andrea Heisinger

New York, Sept. 22 - It has become an assumption that the focus of the investment-grade market is solely on the financial names, and that assumption remained in place on Monday.

A primary source confirmed, with a laugh, that everyone continued to watch headlines for any news of the financial sector.

"At this point, you just don't know if any more bad news is going to come out," he said.

The secondary trading volume was weighted toward the financial side.

Primary awaits pricing window

Potential issuers in the investment-grade primary are waiting for someone to issue so they can see how pricing looks after the recent tumult in the market, a source said Monday.

The tone to start the week was mostly unchanged from where it left off Friday, he said.

"There's nothing to even get a sense of any tone change from," a source said. "There weren't any issues today. It's literally the same as last week."

While there were no more devastating headlines over the weekend, there was continued news of the government's $700 billion bailout plan for the financial sector. Among the news was that a Congressional plan was expected to be at least drafted by Friday.

Provisions will likely include increased oversight on Wall Street firms, protection for homeowners facing foreclosure and caps of compensation for financial executives.

It's possible the plan could overtake the $700 billion estimate, the Treasury department and the government warned.

On Sunday, investment banks Morgan Stanley & Co. Inc. and Goldman Sachs & Co. announced they would become bank holding companies. This will make them subject to greater regulation from government agencies.

Morgan Stanley also announced it is selling up to a 20% stake to Japan's Mitsubishi UFJ Financial Group.

This news didn't really affect the primary Monday, a source said. Although the decision may have surprised the general public, it was no shock to those on the syndicate desks.

"I think most people viewed it as something that did need to occur," a source said. "It's not to say it didn't surprise some people."

Companies and investors continue to wait for a guinea pig of sorts, or a company that needs to issue and can provide some data points on what prices look like.

"Everyone's kind of waiting for price discovery," a source said. "They're waiting for people who need to go."

A backlog continues to grow, with "the list growing more and more" as a bottleneck of potential issuers forms.

Some companies have been waiting since August and beyond to come into the market, but conditions have not allowed it.

"Last week was the first time since the late '80s that there were no new issues," a source said.

Some were hoping this week could break the streak of non issuance, but it seems increasingly unlikely if there is no bailout plan formed until the end of the week.

Without details of the plan as guidance, it's unlikely anyone will consider entering or putting money into the market.

"On the investor side, they're wary of that [pending bailout plan]," a source said. "That definitely plays into the equation."

Bond salespeople have been keeping busy, despite a lack of news issues.

Most of their work these days involves making and fielding market update calls from potential issuers and investors.

The list of backlogged issuers is a mix of both financial and industrial names.

"This calendar has been building for so long, it couldn't be anything but [a mix] at this point," a source said.

Secondary 'generically better'

The secondary market stayed tuned into the latest news on the financial sector Monday as well as what is to come of the government's bailout plan.

Much of the movement in the sector remained generic, with both Morgan Stanley and Goldman Sachs higher on the news they're converting to bank holding companies.

"They ran up significantly and then pulled back midway," a source said.

Both of the bank's bonds were seen 2 to 3 basis points tighter generically.

Paper for General Electric Co. was seen going from 450 bps bid to 350 bps bid, the source said.

"Things were generically better across the board," he said. "Equity was weaker, and oil was higher. We gave some back across the board and ended lower."

Both the primary and secondary remained uncertain and likely will for the time being.

"As long as there is questioning what's going to happen, and until Paulson makes some decision, we're going to continue to see some of this weakness," a source said.

Bank, broker paper tightens

Bank debt-protection costs were seen coming in slightly, 10 bps to 20 bps, a trader said.

Broker names tightened more dramatically, between 40 bps and 120 bps.

Morgan Stanley was seen moving in the most to 410 bps bid, 430 bps offered.

Morgan Stanley tops day's volume

Morgan Stanley had the top volume trade for the day as of early afternoon. Its 3.875% notes due 2009 were seen at the top of the volume list, with two more of the investment bank's notes after it.

General Electric was also seen near the top, after being added to the list of names on the short-selling ban. The company's 5.25% notes due 2017 were seen as the fourth highest volume of the day.

Goldman Sachs was also trading at decent volume on its news of converting into a bank holding company.

Merrill, B of A make moves

Merrill Lynch and Bank of America Corp. were seen as the day's big movers Monday, each tightening around 40 bps. It has been more than a week since Bank of America bought Merrill.

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