New deals dry up, coming week seen similar; spreads widen; Mead Johnson holds higher levels

By Andrea Heisinger and Paul Deckelman

New York, Oct. 30 - New deals took a backseat to the secondary on Friday in the high-grade bond market.

"I think most of the [deals] already got done," a syndicate source said of the week.

"There may have been something in EM, but nothing that we track."

Issuance for the week peaked on Wednesday, including a final sale of notes backed by the Federal Deposit Insurance Corp. from GMAC Financial Services.

The coming week "should be about the same," the syndicate source said.

The focus for the day was, by default, on how recent deals were trading.

Among the established issues in the secondary arena on Friday, a market source said the CDX Series

13 North American high-grade index was 6 basis points wider on the day at a mid bid-asked spread level of 109 bps.

Advancing issues jumped back ahead of decliners Friday, leading them by a better than three-to-two margin.

Overall market activity, reflected in dollar-volume totals, fell 1.3% from Thursday's pace.

Spreads in general were seen wider, in line with lower Treasury yields; for instance, the yield on the benchmark 10-year note narrowed by 11 bps on Thursday to 3.38%.

Traders saw Mead Johnson Nutrition Co.'s new bond issue holding onto most of the initial aftermarket gains which the $1.5 billion, three-part mega-deal had notched after Thursday's pricing.

Earnings, Fed could slow coming week

Most companies have already announced third-quarter earnings - about 65%, by a source's calculation - but there are more to come.

"I think we saw some names coming back [to the primary]," a market source said. "I don't know how many companies need to issue, really."

Many have already done so opportunistically, and do not need to do more debt before the end of the year.

Unemployment figures for October come out at the end of the week, which will likely mean another day of lost issuance on Friday.

The market tone was also not ideal on Friday as the equity market took a tumble on consumer confidence.

"It wasn't pretty out there today," the syndicate source said late in the day.

He added that he "didn't think anyone would have done anything anyway."

Mead Johnson holds gains

In the secondary realm, a trader saw the new Mead Johnson Nutrition bonds having held onto most of the gains they achieved on Thursday, when they tightened anywhere from 10 bps to 17 bps from the spread levels at which the Glenview, Ill.-based maker of infant formula priced its three-part issue earlier in the session.

The trader saw its $500 million of five-year notes offered at 103 early in the morning, although "the most accurate quote" on the day was 110 bps bid, 105 bps offered.

Those bonds had priced Thursday at 120 bps over, tightening to around 110 bps bid, 105 bps offered, when they began trading later that session.

Its $700 million of 10-year notes were seen Friday at 131 bps bid, 128 bps offered. They had priced Thursday at 145 bps over, and had come in to 135 bps bid, 130 bps offered later that same day.

And its $300 million of new 30-year bonds were being offered at 139 bps over Friday - the trader "did not see any two-sided markets in it" - around the same range as Thursday's late level of 140 bps bid, 138 bps offered. All of those quotes were seen well in from 155 bps at the pricing earlier Thursday.

The trader noted that even by staying around Thursday's late trading levels, the new Mead Johnson issue was "holding in pretty good, actually - between Treasuries being up and stocks being down they way they [were Friday], spreads, generally speaking, were wider. So they held in pretty well."

Amphenol issue tightens up

Amphenol Corp.'s new 4.75% notes due 2014 were seen having tightened a little, to an offered level of 225 bps over.

That was in from the 237.5 bps spread at which the Wallingford, Conn.-based electronics components manufacturer priced its $600 million issue late Thursday.

Quiet market seen

Overall, a trader said "it seemed quiet, from what we were seeing

"It seemed like spreads were a little wider, which would make sense, with what was going on in the other markets," such as equities, which were down multiple percentage points, and Treasuries, which firmed.

Citi wider after adverse forecast

The trader saw Citigroup Inc.'s paper 10 bps to 20 bps wider amid general weakness in the bank sector. Apart from that generic condition, the trader noted that Citi's bonds were not helped by an analyst's warning that the New York-based banking giant would take a huge fourth-quarter write down.

"Citi came out later and challenged it, but it didn't seem to help the bonds at all."

Citi's 5% notes due 2014 were seen by a market source to have eased to just under 300 bps on mid-afternoon volume of more than 33 million shares, making it one of the investment grade arena's busiest bond

CLSA Securities analyst Mike Mayo warned in a research note that he expects the bank to write down $10 billion in deferred tax assets.

Citi's New York Stock Exchange-traded shares fell more than 5% on the day in heavy trading.

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