IADB plans benchmark, lingering fears keep issuers away; Dow, Kraft, Goldman wider in trading

By Andrea Heisinger and Cristal Cody

New York, Feb. 8 - New deals were absent from the high-grade bond market on Monday as market conditions and lack of supply kept things quiet.

A benchmark sale was announced by the Inter-American Development Bank, and is expected to price on Tuesday, allowing the books to stay open overnight.

The multi-lateral institution is expected to sell 10-year notes.

Meanwhile, although the Dow Jones Industrial Average closed below 10,000, the weakness in stocks did not directly impact the bond market. But the tone was "down a little" on the bond side, a market source said.

"You had last week where it was a blockbuster," the source said, referring to huge sales from Kraft Foods Inc. and Berkshire Hathaway Inc.

"It was a lot [for the market] to absorb."

Monday started the week off with a whimper in the primary and secondary high-grade markets, according to sources.

Activity was "very quiet" and spreads were "wider" late in the day, according to a trader.

For example, the CDX Series 13 North American high-grade index widened 7 bps to a mid bid-asked spread level of 106 bps.

Overall Trace volume was "light," a source said.

In fact, volume dropped nearly 10% to just under $11 billion on Monday.

Meanwhile, one potential deal was again making the rounds of the rumor mills on Monday.

AT&T, Inc.'s existing bonds moved out as much as 14 basis points on Monday, according to sources.

Treasuries were slightly tighter at the start of the week. The yield on the benchmark 10-year Treasury note firmed 1 bp to 3.56%. The yield on the 30-year Treasury bond firmed 2 bps to 4.50%.

Elsewhere in the secondary markets, notes from Dow Chemical Co., Kraft Foods Inc. and Goldman Sachs Group Inc. were wider on Monday, according to sources.

IADB plans sale

Inter-American Development Bank is planning a sale of 10-year notes on Tuesday after leaving books open overnight, a market source said.

The notes (Aaa/AAA/AAA) are expected to price early, as the sale is being done off London desks, the source said.

HSBC Securities, J.P. Morgan Securities and Morgan Stanley & Co. are bookrunners.

The bank supports the economic and social development in Caribbean and Latin American countries and is based in Washington, D.C.

Tone depressed to begin week

There were no specific headlines that were hurting the high-grade market to start the week, but carry over of bad news from the previous week didn't help the tone, a syndicate source said.

"I'm not sure anybody was going to [price bonds] today, anyway," the source said.

Continued worries about debt loads in European countries didn't help the atmosphere, he said. The skittishness should be temporary.

"I know we have a calendar for the [rest of] the week, and I'm hearing the same away," the source said.

Another syndicate source said that "things should get started tomorrow."

So far, IADB's deal is the only one that has been announced, but there are other moderate sales predicted.

Chatter about a large sale from AT&T Inc. also continues, a market source said, although nothing specific has been announced.

AT&T wider on chatter

One trader was "hearing chatter leftover from last week that AT&T is a likely name to hit the market with a new issue."

The Dallas-based communications company telecommunications company's existing bonds widened as much as 14 bps on Monday, according to sources.

The 5.8% notes due 2019 were 5 bps wider at 142 bps, while the 6.55% notes due 2039 were 14 bps weaker at 179 bps.

Dow Chemical weaker

Dow Chemical's 8.55% notes due 2014 traded tighter early before widening late in the day, sources said.

The notes were seen in the afternoon at 225 bps over Treasuries, according to one trader.

Meanwhile, near the market close on Monday, the Midland, Mich.-based chemical and plastics manufacturer's notes were seen wider at 235 bps from 232 bps on Friday, a source reported.

Kraft widens

Kraft's new notes were active in the secondary on Monday, sources noted.

The new 6.5% notes due 2040, one of four tranches that Kraft sold on Thursday to help fund its takeover of Cadbury plc, "were about 3 bps wider," a trader said.

The notes were seen late Monday at 193 bps out from 190 bps on Friday.

The notes priced at Treasuries plus 205 bps.

Meanwhile, the Northfield, Ill.-based food manufacturer's existing 7% bonds due 2038 - not part of the new deal - were 5 bps wider at 190 bps on Monday, according to a source.

Goldman moves out

Also on Monday, the financial sector was slightly weaker, according to sources.

For example, Goldman Sachs' 7.5% notes due 2019 "looked to be 3 to 5 bps wider today," one trader said.

The notes from the New York-based financial services company were seen closing 2 bps weaker at 180 bps on Monday, a source reported.

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