High-grade primary dries up; trading volume slumps; unemployment dip sends spreads tighter

By Andrea Heisinger

New York, Dec. 4 - New deals were absent from the primary investment-grade bond market on Friday as issuers opted to wait for the coming week.

Unemployment numbers for November were released and were more positive than expected. Despite that, it didn't urge any companies into the market.

"I just don't think there were any [issuers] left," a market source said.

In the secondary market, volume slumped and much of the trading was in bonds that have been active for the past day or two. Citigroup Inc. and Xerox Corp. bonds were both trading at high volume in their sectors.

A new bond from Incitec Pivot Finance was quoted as improved by 15 to 20 basis points.

Spreads moved significantly tighter by late in the day as Treasury yields widened. The 30-year bond was 7 bps wider to yield 4.4%, while the 10-year note moved out to yield 3.47%.

Primary unaffected by unemployment drop

A slight drop in unemployment numbers for November did not have much impact on either the primary or secondary sides of the investment-grade bond market by late in the day, both traders and market sources said.

The percentage of those unemployed in the United States dropped to 10% from 10.2%, to some surprise.

"I don't think it did anything," a market source said. "We didn't have any deals today though, so it's hard to tell [the impact]."

There were no new deals to close out the week, but that was more due to a lack of volume and not headlines.

Incitec Pivot 10-year tightens

A new bond priced a day earlier by Australian chemical fertilizer company Incitec Pivot Finance tightened by 15 to 20 bps in trading by late afternoon, a trader said.

The 6% bond due 2019 priced at 270 bps over Treasuries and was quoted at 255 bps bid, 248 bps offered. It was offered as low as 242 bps on Thursday after pricing.

Secondary activity slumps

There "just wasn't much going on" for the day, a trader said. Much of the activity that did exist was on the financial side of trading.

They said that volume for the day was $7.6 billion by late afternoon. This was significantly less than the $9.7 billion in trades the previous day.

There was no sign of the 8.625% bond due 2016 priced the previous day by Genworth Financial Inc.

"There just wasn't much activity in it," a trader said. "It was a small trade.

Much of the activity was from Citigroup, which had "one of the most actives in the financial [sector]," the trader said.

Xerox bonds priced earlier in the week as a $2 billion deal in three tranches were some of the most actives on the non-financial side.

Spreads in on jobs data

Trading was mostly quiet by late in the day, despite a push to send spreads tighter, a trader said.

"Everyone tried to tighten spreads based on the unemployment numbers," he said, "but no one wanted to buy anything."

Another trader said that when the unemployment figures came out in the morning, there was "such a big drop in the market that no one wanted to do anything. They're just waiting for things to shake out."

Spreads were "down more than 2 points in the long end," the trader said.

Right after the 10% unemployment figure was announced, spreads moved in 2 to 5 bps, but then neutralized throughout the day, they said. Spreads ended about 2 bps tighter overall.

Cisco retakes top traded

A bond from Cisco Systems Inc. was at the top of trading volume by early afternoon, according to Trace data, and was accompanied by a host of assorted names.

Notes from Cisco have been popular with investors for weeks, following the company's $5 billion, multi-tranche offering.

The 5.5% bond due 2040 was among the top-traded. It was quoted at 120 bps.

Following it on the list were bonds from financial names JPMorgan Chase & Co. and Morgan Stanley. A trader said that the JPMorgan bond's inclusion on the list may have been due to a glitch, citing "weird trading volumes."

"Activity was just really screwy," she said.

Cisco took over the reins from Bank of America Corp., which had the top-traded bond on Thursday after it announced it would pay back $45 billion in government bailout money.

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