No new high-grade bonds for second day as oil spill, other fears weigh on market; BP 'crushed'

By Andrea Heisinger and Cristal Cody

New York, June 1 - The high-grade market got off to a slow start for the week following a long weekend, with no new bonds priced.

A spate of bad headlines and worries compounded over the weekend and left potential issuers waiting to price bonds.

At the end of the previous week, two sources said that deals likely wouldn't start flowing into the market until Wednesday.

"No one was going to price anything [on Tuesday]," a source said at the end of the day. "It was kind of ugly out there this morning, so I think people decided to wait."

BP plc's high-grade debt has gapped out as the company faces investor concerns on failed attempt after attempt to stop its massive oil spill in the Gulf of Mexico.

"It was really quiet," one trader said. "Everybody's watching BP get crushed. They're just gapping out every day. Anything oil related is just getting crushed."

The CDX Series 14 North American investment-grade index, which is used as an indicator for the market's direction, was out 5 basis points to a mid bid-asked spread level of 122 bps, a source said.

The market on Tuesday "definitely has a heavy tone," one trader said. "It seems like almost everybody's wider."

On the finance side, though, Goldman Sachs Group, Inc.'s debt firmed in secondary trading on Tuesday, a source said.

Also quoted trading stronger were the new notes due 2015 that Discovery Communications LLC sold a week ago, according to a trader.

Elsewhere, Treasuries picked up as stocks dipped at the end of the day.

"We started the day out up a lot, and the stocks improved and the economic data came in a little bit better than expected," said Mary Ann Hurley, a fixed-income trader for D.A. Davidson & Co. "Now with stocks tanking at the end of the day, our bonds have picked up a bit again."

Yields on the benchmark 10-year Treasury note firmed 4 bps to 3.26%. Yields on the five-year note also tightened 4 bps to 2.02%.

Yields on the 30-year bond were 3 bps tighter at 4.18%.

Negativity continues

There weren't any deals set to price on Tuesday, but any issuers thinking of tapping the investment-grade bond market were likely disappointed by the state of things at the day's open.

Over the long Memorial Day weekend, BP's efforts to plug the oil spill going on in the Gulf of Mexico failed, with a continuing impact on the economy of Louisiana and other states. The United States also announced the launch of a criminal probe into the spill.

The fears about the economic health of the euro zone also continue, and to top all of that off there was news that credit ratings are going to be looked at by a federal panel.

"It was kind of a non-event day," a source said in the afternoon. "You still have some people out [on vacation], and things weren't good anyway."

The stock market had slid by the end of the day, led mostly by energy companies like BP.

One source called the situation "a waiting game." He pointed out that the market tone has been shaky for the past couple of weeks, but bonds were still being priced in the high-grade market.

"There are still names to get things done," he said. "We just have to gauge the market."

No set deals have been announced for Wednesday, and any decisions to sell bonds will be made in the morning, he said.

BP gaps out

BP's bonds were "out about 100 bps generically," one trader said Tuesday afternoon.

For example, BP's 3.875% bonds due 2015 were quoted at 30 bps over Treasuries on April 16 - before the oilrig explosion in the Gulf on April 20.

"The last quote I saw today was 225, 215. It's probably wider to that on the bid side," another trader said.

Since the explosion, which killed 11 people, an estimated 20 million to 40 million gallons of oil have gushed out.

The London-based fuel company's attempts to stop the leak have failed, and on Tuesday, the U.S. government announced the start of civil and criminal investigations.

"I'm seeing a lot more quotes than real markets because no one wants to buy them," the trader said.

Discovery Communications tighter

The short investment-grade paper from Discovery Communications, which sold $3 billion of bonds on May 26, was active in secondary trading on Tuesday, according to sources.

"Since they came out with their bonds, it's been a fairly active issue," a trader said.

Discovery sold the guaranteed senior unsecured notes (Baa2/BBB-/BBB) in three tranches. The 3.7% notes due 2015 priced at Treasuries plus 170 bps.

The five-year notes were quoted Tuesday tighter at 154 bps over Treasuries.

No activity was seen in the second tranche of 5.05% notes due 2020 that priced at Treasuries plus 190 bps or the third tranche of 6.35% bonds due 2040, which sold at a spread of Treasuries plus 225 bps.

The notes are guaranteed by the Silver Spring, Md.-based media and entertainment company's parent, Discovery Communications, Inc.

"Everything else is widening but these new issues," the trader said. "It's just the sector because it's not finance and it's not oil-related. It's what seems to be a safe haven right now."

Goldman firms

While industrials were weaker, Goldman's new 6% senior notes (A1/A/A+) due 2020, which priced on May 26 at Treasuries plus 280 bps, firmed in trading on Tuesday, a trader said.

"Funny on those sixes - I've barely seen them since they came out."

The notes were seen Thursday bid at 270 bps and they were "bid 265 today," the trader said.

Goldman's other 10-year note, the 5.375% notes due 2020, were quoted slightly tighter in the secondary.

In trading late in the previous week, the notes were seen at 267 bps bid, 262 bps offered.

"And today I saw them bid at 265, so they're not really doing much," the trader said.

Debt from the New York-based investment bank has taken a hit since the Securities and Exchange Commission filed civil fraud charges in April.

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