Bank of NY Mellon prices notes; primary market focuses on fate of Fannie, Freddie; new deals tighten

By Andrea Heisinger and Paul Deckelman

New York, Aug. 20 - A new issue from Bank of New York Mellon Corp. livened an otherwise quiet Wednesday.

A lack of issuers combined with a lull in headlines - either negative or positive - to make for a dull day, sources said.

"It will only get worse next week," one source said. "People are on vacation this week, but everyone's on vacation next week."

In the investment-grade secondary market Wednesday, advancing issues led decliners by a ratio of nearly seven to six, while overall market activity, reflected in dollar volumes, rose nearly 21% from Tuesday's pace.

Spreads in general were seen somewhat wider, in line with lower Treasury yields; for instance, the yield on the benchmark 10-year issue tightened by 5 basis points to 3.78%.

Several recently priced new issues continued to tighten from the levels at which they had priced, notably American Express Credit Co. and 3M Co.

Bank of N.Y. upsizes issue

Bank of New York Mellon priced $750 million of 5.125% five-year notes at Treasuries plus 220 basis points.

This was an increase in size from $300 million, a source close to the deal said.

The notes priced at 99.64 to yield 5.206%.

Price talk for the issue was 220 bps, which is where the notes launched, the source said.

It wasn't much of a surprise to see the issue Wednesday, a market source said, although no one had been sure when it would price.

"They're an infrequent issuer, but they have been looking at the market for a week or two," the source said.

The issue also had a good premium, he said, with the bank's outstanding five-years at 210 bps Wednesday.

Bookrunners were Banc of America Securities LLC and Morgan Stanley & Co., Inc.

3M issue well received

Monday's issue from diversified technology company 3M Co. went well, a spokeswoman for the company said Wednesday.

The $850 million of 4.375% five-year medium-term notes was well received by investors, she said, although could not say how oversubscribed the issue was.

She also could not comment on why the company chose to issue Monday, instead of last week when it had first been looking at the market.

"I don't think we can really comment on our strategy," she said. "But it's fair to say a lot depends on market conditions."

Slowdown to continue

Although no one in the investment-grade bond market is certain of coming issuance these days, market sources are agreeing on one thing.

The remaining days of this week, and all of next week leading into the long Labor Day weekend will be slow, the sources said.

"The rest of the week will be quiet," one said Wednesday. "Not to say there won't be an issuer or two between now and Friday, but it's hard to say."

There weren't any "new or revealing" data points released Wednesday, such as earnings by big companies or any negative economic data.

The big story is still the fate of mortgage lenders Freddie Mac and Fannie Mae, and investors and companies alike are hesitant to do anything until the situation is resolved.

"Everyone's just focused on the agencies and waiting for a solution," a source said. "Until that happens, not much is going to happen."

Tuesdays positive earnings from Hewlett-Packard Co. may have boosted the technology sector and the stock market, but had little effect on the bond market, the source said.

The focus is on financial companies' earnings more than the retail or industrial sector, he said, and what turn they might take.

Spreads weaker

In the secondary market, a trader said that "nothing out of the ordinary" was going on. "Spreads have been under pressure lately - but that's to be expected with the way things have been going."

The new Bank of New York Mellon 5.125% notes due 2013 appeared too late in the session for any meaningful aftermarket dealings.

American Express, 3M trade tighter

Among recently priced issues, the trader saw the new American Express Credit 7.30% notes due 2013 continuing to tighten up, quoting the bonds at 414 bps bid, 408 bps offered. That is about 6 bps tighter than where the bonds were bid on Tuesday - and some 11 bps narrower than the spread over comparable Treasury issues of 425 bps at which the financial services company priced $2 billion of the bonds on Friday.

As was the case on Tuesday, the bonds were extremely active - a market source indicated that some $130 million of the bonds had changed hands by mid-to-late afternoon, around double the turnover of the next most active issue.

As it turned out, the source said, that runner-up issue turned out to be another newbie - the 3M Co. 4.375% notes due 2013. The first trader saw the bonds tighten to 128 bps bid, 126 bps offered, versus 130 bps bid, 129 bps offered on Tuesday, and versus the 135 bps level at which the company priced its $850 million of new paper on Monday.

Duke Energy continues to struggle

However, as had been the case on Tuesday, the new Duke Energy Indiana Inc. 6.35% first mortgage bonds due 2038 continued to trade wide of the 193 bps over level at which the utility operator had priced its $500 million of bonds on Monday.

He said "I don't think that one has really moved that much," quoting the paper at 198 bps bid, 192 bps offered. On Tuesday, the bonds had been quoted as having widened out to about 200 bps over in the morning, then tightening back to around 196 bps bid, 193 bps offered later in the session.

H-P little moved on numbers

Outside of the new-deal arena, he saw Hewlett-Packard's 5.50% notes due 2018 offered at 185 bps, versus prior levels at 190 bps bid, 180 bps offered, "so that doesn't sound like there was much movement there," despite the Palo Alto, Calif.-based high-tech company's better-than-expected fiscal third-quarter results and its optimistic projections for the fiscal fourth quarter. "It was pretty much unchanged."

He also saw its 4.50% notes due 2013 offered at 152 bps, likewise little changed.

The company reported that in the fiscal third-quarter ended July 30 it earned $2 billion, or 80 cents a share, up 11% from $1.8 billion, or 66 cents a share, in the same period a year ago. Revenue rose 10%, to $28 billion, from year-earlier sales of $25.4 billion. Excluding one-time items, H-P would have earned $2.2 billion, or 86 cents a share, beating Wall Street analysts' consensus expectations of 83 cents a share on revenue of $27.4 billion.

Looking ahead, the company projects that in the August-October quarter, it will earn between $1.01 and $1.03 per share, above the $1 that the analysts had been forecasting. It also predicted that sales will come in between $30.2 billion and $30.3 billion, likewise slightly ahead of Street expectations.

© 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.