Primary quiet after earnings streak; Northrop stays firm, St. Jude gains more; spreads wider

By Andrea Heisinger and Paul Deckelman

New York, July 28 - New deals were mostly non-existent in the high-grade primary Tuesday, sources said. The only issue came from the emerging markets side, with KazMunaiGaz reopening some notes.

The remainder of the week could pick up, although one source said the lack of deals could continue, although adding "I hope not, but it's possible."

Among the established issues in the secondary arena on Tuesday, a market source said the CDX Series 12 North American high-grade index widened by 2 basis points to a mid bid-asked spread level of 116 bps.

Advancing issues - which led decliners for a second straight session on Monday, albeit by a narrow margin - continued to hold sway on Tuesday, widening their lead to a better than six-to-five ratio.

Overall market activity, reflected in dollar-volume totals, rose about 30% from Monday's pace.

Spreads in general were seen wider, in line with lower Treasury yields; for instance, the yield on the benchmark 10-year issue narrowed about 4 bps on Tuesday to 3.68%.

Traders saw the new Northrop Grumman Corp. bonds continuing to trade at firmer levels from its Monday pricing.

St. Jude Medical Inc. bonds meantime continued to firm, in relatively active dealings.

New deals dry up

The lack of offerings in the high-grade primary had some sources scratching their heads by late in the day.

"It's weird we didn't see something," a source said.

When asked if there was an underlying reason for the vacant primary, he said, "no, not really."

A second source also didn't have a solid answer to why no one was pricing bonds.

"I don't know," he said. "We just got out of the earnings stretch. The number of issuers are dwindling."

This could be temporary, with issuance picking back up Wednesday and Thursday. The previous week saw a fair amount of deals toward the end of the week.

"We should be hitting the ground running right now," a source said. "Hopefully it will get better. There's nothing going on right now."

Kazakh issuer sells split-rated notes

KazMunaiGaz priced a $250 million reopening of its senior unsecured 11.75% bonds due 2015 at a 102 level, a market source said.

Citigroup Global Markets and J.P. Morgan Securities were bookrunners for the Rule 144A and Regulation S deal which closed very shortly after books opened.

The original $1.25 billion bonds were priced on July 17 at 99.014 to yield 12%.

Proceeds from the deal, priced through KazMunaiGaz Finance Sub BV, will be used for general budgetary purposes and to refinance debt.

The government-run energy firm is based in Astana, Kazakhstan.

Northrop Grumman holds gains

A trader saw Northrop Grumman's new bonds continuing to trade around the levels to which they had risen on Monday.

He saw the Los Angeles-based aerospace and defense contractor's 5.05% notes due 2019 trading at a spread over comparable Treasury issues of 120 bps bid, 118 bps offered - one of the few features he saw on an otherwise very quiet day.

That $500 million of bonds had priced on Monday at 135 bps over, as part of an $850 million two-tranche deal, and had proceeded to tighten later Monday to 121 bps bid, 117 bps offered.

The trader did not see any sign Tuesday of the deal's other half - the $350 million of 3.70% notes due 2014, which priced at 115 bps over.

St. Jude better

A market source saw St. Jude Medical's 4.875% notes due 2019 having tightened to about 106 bps over, a pickup of 5 bps to 10 bps on the day.

The St. Paul, Minn.-based company, which manufactures and distributes cardiovascular medical devices and implantable neurostimulation devices, priced $500 million of the bonds at 132 bps over on July 23.

The company's 3.75% notes due 2014 were meantime quoted at 104 bps over - well in from the 132.5 bps level at which the $1.2 billion of new paper priced, also last Wednesday.

Bank of America tightens up

In the financial sector, a market source saw Bank of America Corp.'s 6.50% notes due 2016 having firmed solidly on the day to a spread level of 285 bps over Treasuries. That was a 32 bps pickup over where the Charlotte, N.C.-based banking giant's bonds had been trading on Wednesday.

However, B of A's 7.375% notes due 2014 were seen virtually unchanged at 285 bps over.

Bank, brokerage CDS little changed

A trader who watches the credit-default swaps market said that the cost of protecting a holder of big-bank bonds against a possible event of default was unchanged to 5 bps tighter, while brokerage company CDS costs were unchanged on the day.

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