Ohio National Financial Services plans deal; focus sets on Goldman, financials; Treasuries ease

By Andrea Heisinger and Cristal Cody

New York, April 19 - The investment-grade bond market was again focused on large banking names on Monday, leaving the primary market bare of new deals.

Ohio National Financial Services Inc. announced a $300 million sale of 10-year notes that is expected to price in the coming few days.

Other than that small bit of action for the primary, talk mainly focused on Goldman Sachs Group Inc. and earnings from Citigroup Inc.

Citi reported a solid first-quarter profit of $4.4 billion in the morning - its best in three years - compared with $1.6 billion a year ago.

Goldman Sachs is reporting its Q1 numbers early on Tuesday, with that news largely overshadowed by the ongoing allegations against the company.

"I don't think anyone wanted to touch the market today," a source said.

Goldman was the "market mover" in trading on Monday, along with other bank paper, as investors weigh concerns over whether federal fraud charges against Goldman are a one-time occurrence, a source said.

Financials took most of their hit on Friday after federal regulators filed the civil fraud charges against Goldman over its handling of mortgage-backed securities, but Goldman and other bank paper widened slightly on Monday, according to sources.

"Everything was bank and finance paper today," a source said.

On Friday, outstanding high-grade debt from Goldman was seen trading as much as 30 bps wider on the news, while high-grade debt from Citigroup and other banks moved out, according to sources.

Elsewhere, the CDX Series 14 North American high-grade index eased 2 basis points to a mid bid-asked spread level of 89 bps, according to a market source.

Also, overall Trace volume rose about 13% to about $12 billion, according to a source.

"Volume is a little light," a source said. "It seemed like an off day. It's kind of a wait-and-see mood."

Meanwhile, Treasuries ended the day weaker.

The yield on the 10-year benchmark Treasury note eased 3 bps to 3.80%, and the yield on the 30-year Treasury bond rose 3 bps to 4.70%.

Ohio National plans 10-year sale

Ohio National Financial Services announced a $300 million sale of 10-year notes early in the day, with pricing "sometime this week," a source close to the sale said.

The notes (Baa1/A) will be sold under Rule 144A, with Bank of America Merrill Lynch running the books.

Proceeds are being used to tender for 7% notes due 2011.

The insurance company is based in Cincinnati, Ohio.

All eyes on financial sector

With new issues absent, the primary side of the market kept tabs on how the big financials fared in trading, a market source said.

"There were a lot of negative things out today," he said, referring to headlines about Goldman Sachs. "All of the activity was in the secondary [financials]."

After the initial civil suit against Goldman's mortgage unit by the Securities and Exchange Commission the previous week, there came a New York Times report alleging that executives in the bank may have known about it. Britain and Germany also said they may launch their own investigations.

It's expected Goldman will announce stellar Q1 earnings on Tuesday, but it's unclear what impact that will have on new deals.

"We're kind of on hold now," a source said at the end of the day. "It could give it a boost, but Citi didn't do much today."

The calendar for deals was expected to be light anyway, with few issues pinned down at the end of the previous week.

The Ohio National Financial Services sale is the only one officially announced for the week.

Goldman wider

Goldman "dominated" trading on Monday, while the financial sector overall also was the most active, according to a source.

"They were all wider - Goldman and a lot of the financials," the source said. "Over $800 million traded in Goldman so far and less than $300 million on Citi. Just a ton of trading on Goldman."

Goldman has denied the SEC's allegations.

On Friday, New York-based Goldman's 6.15% notes due 2018 moved out to 148 bps from 120 bps on Thursday, according to a source. In addition, Goldman's 7.5% notes due 2019 widened to 166 bps on Friday from 137 bps.

Goldman's notes weakened further on Monday.

"It's a little wider today," a trader said. "The 10-years on the last quote was 183, 177. On Thursday, they were 140, 135."

Citigroup's bonds also eased despite posting a $4.43 billion first quarter profit and its best quarterly results in three years on Monday, according to a source.

"They're ignoring the earnings and more of the financials in general are getting hit by the Goldman deal," the trader said.

Concern is spreading on whether the charges against Goldman are the "tip of the iceberg" and whether "other banks are doing the same thing," the trader said.

"All the finance paper widened out this morning and stayed wide all day," the trader said.

Also, Goldman Sachs' results report "could set the tone" for the market, a source said.

Banks, brokers move out

Elsewhere, the cost of insuring holders of major bank or brokerage house paper against a possible default was mostly wider, according to sources.

For example, bank paper CDS levels were quoted at even to 10 bps wider.

Also, brokerage-name CDS costs were 4 bps to 7 bps wider.

Stephanie Rotondo contributed to this report.

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