Investment-grade volume expected to drop in June; Treasury rally and jobs data balance tone

By Aleesia Forni and Andrea Heisinger

New York, June 1 - High-grade bond deals were absent on Friday as dismaying jobs numbers came out for May. The data showed that fewer jobs were added to the U.S. economy than expected.

Unemployment rose to 8.2% for the month from 8.1% in April. Between this data and continued negativity from the euro zone, June could be a slow month, sources said.

"There's just a lot of uncertainty," one source said.

"I think everyone's saying June is going to be slower [than May], but we don't know how much."

Estimates for June's volume are $30 billion to $60 billion. One syndicate source's desk had a narrower view of between $45 billion and $55 billion.

"It really depends on what happens," the source said, referring to Greece and other headlines that could impact issuance. "A lot of people are on the sidelines waiting."

The past four-day week saw $17.27 billion of new bonds in 16 deals, according to data compiled by Prospect News.

The coming week could see about $10 billion of new bonds, a market source said.

"I'm not hearing of any big benchmark [deals]," the source said. "I know we've had a couple [issuers] that have been looking at the market. People are spread sensitive now."

New issue concessions for recent offerings like the $6 billion deal from Kraft Foods Group, Inc. were between 15 basis points and 25 bps, the market source said.

Also in the secondary, Bank of Nova Scotia, Morgan Stanley and Royal Bank of Canada were between 5 bps and 15 bps wider on the day.

A second market source pegged volume for the coming week between $5 billion and $10 billion, adding "but I'm a little bullish."

"The Treasury rally's helped, but the bad jobs numbers widened spreads, so I think it balanced out," this market source said.

Investment-grade bank and broker credit default swaps widened on the day, according to a source.

Bank of America's CDS costs rose 5 bps to 305 bps bid, 310 bps offered. Citi's CDS costs also increased 5 bps to 278 bps bid, 283 bps offered. Additionally, JPMorgan's costs rose 5 bps to 160 bps bid, 165 bps offered.

Brokers also widened on Friday. Merrill Lynch's CDS costs traded 5 bps wider at 323 bps bid, 333 bps offered. Morgan Stanley's CDS costs traded 2 bps wider at 443 bps bid, 453 bps offered. Goldman Sachs' CDS costs widened 10 bps to 330 bps bid, 340 bps offered.

Market holds Schwab back

Charles Schwab Corp.'s new $425 million issue of 6% series B noncumulative perpetual preferred stock was seen trading around $24.67 in the gray market at midday, a trader said.

After the bell, a trader said the preferreds were the day's most active issue, with about 1 million shares changing hands.

He pegged the securities at $24.65. When asked why the deal had failed to gain any traction since pricing on Wednesday, the trader surmised that it was "just a soft market in general."

As previously reported, however, one market source speculated that the new issue was not performing well because it was poorly underwritten.

"They pushed it a lot on size and price," he said on Thursday.

The San Francisco-based investment firm will use proceeds from the offering for general corporate purposes, which may include extending credit to or funding investments in subsidiaries and the possible refinancing of outstanding debt obligations.

Bank of Nova Scotia widens

Bonds from Bank of Nova Scotia due 2017 widened 5 bps on the day to 105 bps bid at Friday's close.

The Halifax, N.S.-based bank priced $1.25 billion of the bonds at Treasuries plus 172 bps in January.

Morgan Stanley widens

Also in the secondary, Morgan Stanley's $1 billion 10-year bonds traded 15 bps wider on the day, closing the session at 530 bps bid.

Morgan Stanley priced the 7.3% notes in June 2009 at 360 bps over Treasuries in June 2009.

RBC too

Royal Bank of Canada's bonds also widened on the day. The bank's $1.25 billion of 1.45% notes due 2014 traded 8 bps wider at 78 bps bid.

The notes priced at 105 bps over Treasuries in October 2011.

Stephanie N. Rotondo contributed to this review

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.