IBRD reopens short bond, volatility halts issuance; financials trade wider in light volume

By Andrea Heisinger

New York, Nov. 21 - The high-grade primary market was mostly deserted on Monday as news out of a Congressional supercommittee combined with continuing headlines from elsewhere in the world scared away issuers.

The International Bank for Reconstruction and Development reopened an issue of notes due 2013 to add $2.25 billion.

Late in the day, the Congressional supercommittee announced it could not reach an agreement on the deficit, which will lead to automatic massive spending cuts. This likely means that Tuesday also will be empty of new deals, a source said.

"I can't see how it will be better by tomorrow," the source said.

Another source said that they "didn't see how anything will get done Tuesday."

"It wasn't pretty out there today," that source added.

Trading was light for a second session, repeating Friday's pattern, a secondary source said.

"There was not much trading at all today," the secondary source said. "It wasn't looking good in any event."

Bonds were trading wider overall, although "not a lot wider," a source said.

Financial paper was the sector that saw the most widening, the source said, on average moving between 5 and 15 basis points wider.

On-the-run paper was about 5 bps wider. There wasn't enough trading in off-the-run paper to tell if there were sizable moves, he said.

Bank of America Corp. saw its paper suffer widening at the higher end of the 5 to 15 bps spectrum, a trader said, following the trend from late the previous week.

Citigroup Inc., Goldman Sachs Group Inc. and Morgan Stanley were next in line for widening.

Bank and brokerage credit default swap costs rose on decreased investor confidence in the sector, a source said.

Treasuries ended the day unchanged to slightly better as euro zone fears combined with domestic worries.

The five-year note was unchanged from Friday at a yield of 0.91%. The 10-year Treasury yield came in 3 bps to 1.97% and the 30-year bond was in 4 bps to 2.95%.

IBRD's reopening

The International Bank for Reconstruction and Development reopened its issue of 0.5% global notes due 2013 on Monday to add $2.25 billion, an informed source said.

The notes (Aaa/AAA) were priced at a spread of Treasuries plus 24 bps.

The total issue size is now $6.25 billion, including $4 billion priced on Oct. 19 at 24 bps over Treasuries.

BNP Paribas Securities Corp., Citigroup Global Markets Inc., Daiwa Securities and RBC Capital Markets LLC were bookrunners.

The arm of the World Bank that provides loans to developing countries is based in Washington, D.C.

Banks among most active

The bonds trading at the highest volume were from a mixed bag of sectors on Monday, a source said.

J.P. Morgan Chase & Co. had the top trading bond as of early afternoon with its 4.35% notes due 2021 quoted at 99.023, down from its price of 99.52.

The paper next seen trading at heavy volume was Amgen Inc.'s 2.5% notes due 2016, which priced at 99.897 and are now cheaper at 98.82.

Bank, broker CDS costs up

The cost of insuring bank and brokerage names against default rose on Monday as the sector also weakened in trading.

A trader said that Bank of America's CDS costs rose 10 bps to between 410 and 425 bps. Citigroup saw its costs rise 5 bps to 285 bps bid, 295 bps offered.

Among brokerage names, Morgan Stanley's CDS costs were up 12 bps to 487 bps bid, 497 bps offered. Goldman Sachs' costs were up 5 bps to 380 bps bid, 390 bps offered.

Paul Deckelman contributed to this review

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