Issuers stand down to end hectic week; rest of August to be quiet; secondary market 'shaky'

By Aleesia Forni and Andrea Heisinger

New York, Aug. 17 - The week's issuance of investment-grade bonds exceeded expectations, even if the primary saw little activity on Friday.

Between $10 billion and $15 billion was expected, and roughly $22 billion actually priced, according to Prospect News data.

The coming week is said to be quieter with between $5 billion and $10 billion of supply waiting in the wings.

"It's definitely going to be lower than this week," a source said. "We have a couple of situations, but not hearing of too much away."

While potential issuers are still looking at the bond market, "spreads need to tighten in a little," the source said, adding that there was also some weakness in the secondary side of the market on Friday.

A market source also pegged the coming week as having $5 billion to $10 billion of supply, adding that "it's going to be closer to the lower end, in my opinion."

Syndicate desks seemed to not have many deals on tap for Monday in contrast to the last two weeks when offerings poured in at the top of the week.

"I know we have a couple of possibilities for Tuesday," the market source said.

The primary may finally get a summer slowdown leading up to the Labor Day holiday.

"The next two weeks should be slow," the market source said. "It will come back in September."

The secondary market "seemed a little shaky" on Friday. Existing bonds have been traded in for the new issues, causing some weakness in the market, according to a market source.

Industrials took a slight hit due in part to the recent mine shooting in South Africa, the source continued.

Thursday's issues were mixed on Friday, one trader said.

Burlington Northern Santa Fe, LLC's bonds were unchanged following an initial tightening on Thursday, and Rio Tinto Finance (USA) plc saw its five-year notes tighten, while the new bonds due 2022 and 2042 both widened 3 basis points.

Rio Tinto mixed

Rio Tinto Finance's new bonds were mixed in secondary trading, a market source said.

The $1.25 billion tranche of 1.625% five-year notes traded 8 bps tighter at 85 bps bid, 83 bps offered during Friday's session. The notes priced at a spread of Treasuries plus 93 bps on Thursday.

After initially tightening 3 bps near Thursday's close, the $1 billion of 2.875% 10-year notes traded at 123 bps bid, 119 bps offered. They priced at a spread of Treasuries plus 120 bps.

The $750 million of 4.125% 30-year bonds widened to 138 bps bid, 131 bps offered. The notes priced at 135 bps over Treasuries.

Rio Tinto is a mining company based in Melbourne, Australia, and London.

Burlington Northern bonds flat

Burlington Northern Santa Fe's bonds were unchanged from Thursday's close, one trader said.

The $600 million of 3.05% 10-year notes traded at 123 bps bid, 120 bps offered on Friday. The notes priced at a spread of Treasuries plus 125 bps on Thursday.

A $650 million tranche of 4.375% 30-year bonds also traded flat at 150 bps bid, 145 bps offered. They sold at 150 bps over Treasuries.

The holding company for railroad transportation subsidiaries is based in Fort Worth.

S&P says spreads wider

A report out on Friday from Standard & Poor's said that investment-grade composite spreads have widened 5 bps to 199 bps. Those with AA ratings widened by 4 bps, those with an A rating widened by 5 bps, and BBB spreads widened by 4 bps.

S&P also broke spreads down by industry. Financial institutions, banks and industrials fared better, widening by 4 bps, while companies in the utilities and telecommunications sectors expanded by 5 bps.

Despite all of this widening, the report also said that high-grade spreads are down from their highs in October 2011. The investment-grade spread is below its one-year moving average of 214 bps and also below its five-year moving average of 245 bps, according to the S&P report.

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