Primary tone drops farther to end low-volume week; bonds weaker on week; Wells Fargo widens

By Andrea Heisinger and Cristal Cody

May 18, New York - The high-grade bond market saw no new deals price on Friday, ending a week that failed to live up to expectations.

At the end of the previous week, there were predictions of $25 billion to $30 billion of supply with 10 to 12 sales coming on Monday alone. Instead, $7.67 billion of high-grade bonds priced in 18 deals.

"The market was soft, so it's not surprising," a source said.

As of late Friday, syndicate desks were cautiously optimistic about the coming week. The unresolved situation with Greece, which could leave the European Union, could put a wrinkle in new issuance in the coming week leading into the Memorial Day holiday weekend.

"If the tone holds, maybe $20 billion," a syndicate source said of coming issuance.

There wasn't much supply held over from the past week, although some that surveyed the market Thursday threw in the towel and instead decided to take the temperature of the primary on Monday.

"We should have a good mix - the usual," the syndicate source said. "Some small, some bigger. I would assume it's going to be top heavy. No one's really going to be working Friday."

The market was "a little worse, actually," to end the week, a source said, following a drop on Thursday when only one deal priced.

Corporate bond spreads stayed wider on the week. The Markit CDX Series 18 North American Investment Grade index ended Friday flat at a spread of 123 bps. The index closed a week ago at a spread of 109 bps.

ABB Finance (USA) Inc.'s bonds that priced earlier in May traded wider, a source said on Friday.

Bank and financial paper stayed wider in secondary trading, including Wells Fargo & Co.'s paper.

Investment-grade bank and brokerage credit default swap costs were unchanged to higher on the day.

Bank of America's CDS costs traded flat at 305 bps bid, 315 bps offered. Citi's CDS costs also ended unchanged at 265 bps bid, 275 bps offered. JPMorgan's CDS costs edged up 1 bp to 154 bps bid, 159 bps offered. Wells Fargo's CDS costs rose 2 bps to 124 bps bid, 129 bps offered.

Brokerage CDS costs traded mostly wider. Merrill Lynch's CDS costs were flat at 330 bps bid, 340 bps offered. Morgan Stanley's CDS costs rose 5 bps to 445 bps bid, 460 bps offered. Goldman Sachs' CDS costs widened 5 bps to 350 bps bid, 360 bps offered.

Treasuries gave up some gains Friday on profit-taking. The yield on the benchmark 10-year note closed Friday 3 bps higher at 1.72%. The 30-year bond yield rose 2 bps to 2.8%.

ABB weakens

In the secondary market, ABB Finance's 4.375% bonds due 2042 widened to 152 bps bid, a market source said.

ABB sold $750 million of the notes at Treasuries plus 145 bps as part of a three-tranche offering of bonds (Aa3/A/) on May 3.

ABB Finance is based in Norwalk, Conn. It is a unit of Zurich-based power and automation technology company ABB Ltd.

Wells Fargo widens

Along with the rest of the bank and financial sector, Wells Fargo's 3.5% senior holding company notes due 2022 traded weaker on Friday, a source said.

The notes widened to 177 bps bid.

Wells Fargo sold $2.5 billion of the 10-year notes (A2/A+/AA-) at 150 bps over Treasuries on March 1.

The financial services company is based in San Francisco.

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