GATX, Air Products, PNC, Bank of NY, National Australia price on positive tone

By Andrea Heisinger and Paul Deckelman

Omaha, Feb. 1 - A steady stream of investment-grade issuers came to the market Friday including GATX Corp., Air Products & Chemicals, Inc., PNC Bank, Bank of New York Mellon Corp. and National Australia Bank.

One source said the strong showing was partially because of positive employment data coming out.

In the investment-grade secondary market Friday, advancing issues again topped decliners by a three-to-two margin, while overall market activity, reflected in dollar volumes, declined about 18% from Thursday's levels.

News reports indicating that a group of large banks would join together to find ways to shore up troubled monoline insurer Ambac Financial Group Inc caused the credit-default swaps spread on the company's bonds to narrow sharply from recently bloated levels and saw a similar, though smaller, tightening for larger sector MBIA Inc.'s debt-protection costs.

CDS costs for major banks and brokerage firms were meantime seen little changed.

In the cash bond market, such financial names as Goldman Sachs and JP Morgan Chase were seen firming. There were volatile moves in such telecommunications sector names as Sprint Nextel and AT&T.

GATX brings $200 million

GATX priced $200 million 6% 10-year senior notes at 99.448 to yield 6.074% at a spread of Treasuries plus 250 basis points.

Citigroup Global Markets Inc. and J.P. Morgan Securities Inc. were bookrunners.

Air Products & Chemicals priced $300 million in 4.15% five-year senior notes at 99.822 to yield 4.19% with a spread of Treasuries plus 150 bps.

Bookrunners were Barclays Capital Inc. and Goldman Sachs & Co.

PNC Bank priced $300 million notes due 2009 with a coupon of three-month Libor plus 40 bps and price of 99.95.

Credit Suisse ran the books.

Bank of New York reopened its two-year floating-rate notes to add $200 million. The notes priced at par to yield Libor plus 40 bps.

The total issuance is now $900 million, including $700 million priced Jan. 29.

Morgan Stanley & Co. Inc. and J.P. Morgan Securities Inc. were bookrunners.

National Australia sells floaters

National Australia Bank priced $1 billion in two-year floaters at par to yield Libor plus 45 bps.

Goldman Sachs and Morgan Stanley ran the books.

These issues wrapped up a week of more than $22.5 billion.

"Initially the tone was tighter after employment figures came out, but then things fluctuated and it closed tighter," a source said.

"The tone was good. Some expected it to weaken a lot for some reason."

Issuers were largely financials and included JPMorgan Chase & Co., Wachovia Corp., U.S. Bancorp, Bear Stearns Cos. Inc., AT&T Inc., American Honda Finance, Rentenbank, Union Pacific Corp., Oklahoma Gas & Electric Co., Toyota Motor Credit Corp. and John Deere Capital Corp.

Sources had expected a larger volume week because of stability and the Federal Reserve cutting interest rates again, by 50 bps.

Strong month

When fewer issuers than anticipated came to the market, it was noted that January was still a high-volume month.

Estimates are between $90 billion and $145 billion, the lower number not including extendible note issues and sovereigns.

"It was still a big month," a market source said.

The month ahead may slow in pace, another source said.

"February will probably be quieter than January," he said. "There could be some more non-financials, but I think we've blown through most of that."

The source cited AT&T Inc. and Target Corp. issues as part of a backlog from less stable times in January that eventually came to the market.

Many financials also exhausted their issuance, he said.

Monoline CDS spreads narrow

News that a bank consortium is looking to possibly rescue Ambac drove its CDS costs down sharply, market participants said, quoting the bond insurer's debt-protection costs as having come in to 6% upfront and 500 basis points annually from previous levels as wide as 16% upfront and 500 bps annually

Sector peer MBIA's debt-protection cost meantime came in to 13% upfront from 16% previously, plus 500 bps annually. The narrowed CDS costs reflected increased confidence in the recently beleaguered bond insurance industry.

The monoline CDS costs tightened markedly on the news that a bank group rescue plan could be crafted for Ambac, which is fighting to hang onto its AAA credit ratings. Another bank group was looking into ways to shore up the finances of the sector generally, including MBIA.

Apart from the monolines, a trader said that major bank and brokerage spreads over comparable Treasury issues were mostly unchanged to perhaps 1 or 2 bps wider. "There was very little activity," he said.

Financial bonds tighten up

In the cash bond market, financial issues were seen tighter, no doubt buoyed by the possibility of an Ambac rescue.

Goldman Sachs' 6.875% notes due 2011 were 15 bps tighter around the 120 bps level, JP Morgan's 5.875% notes due 2035 were quoted 15 bps tighter as well, at the 245 bps level, while Citigroup's 5.875% notes due 2037 were in by a similar amount to around the 190 bps level.

Phone bonds volatile

Outside of the financial names, there was movement in some of the telecom names.

A market source saw AT&T Wireless Services' 8.125% notes due 2012 having widened nearly 30 bps since mid-week to 198 bps, and AT&T's New Cingular 7.875% notes due 2011 wider by 10 bps at the 170 bps level while Sprint Capital's 8.375% notes due 2012 were 20 bps tighter at 460 bps over. Sprint's 6% notes due 2016 were meantime 8 bps wider at 413 bps over.

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