Primary volume expected to pick up mid-month; deals trade better as bank CDS costs tighten

By Andrea Heisinger

New York, Oct. 21 - There was no new paper flowing into the investment-grade primary on Friday, but the week had a handful of successful deals, including three the previous day.

By mid-week, syndicate desks were already looking ahead to the coming week, hopeful that the tone would be better.

While the coming week is seen as having about $5 billion of volume - similar to the past week -, there's more optimism due to how the tone ended.

"Equities closed great this week," a source said. "As long as nothing bad happens at the [euro zone] summit on Sunday, we should be good going into Monday."

On the secondary side of the market, the three deals priced on Thursday were all substantially tighter, traders said.

PerkinElmer, Inc., Sonoco Products Co. and Pernod Ricard SA each saw their deals move between 10 and 35 basis points better.

Overall trading volume was at about $9.2 million, a trader said, which was a drop from the $12 million the previous day.

"Tone was positive," the trader said. "Everything seemed tighter."

Long-dated Treasury yields rose from the previous day while shorter-dated ones remained unchanged.

The five-year note was flat at 1.06% while the 10-year maturity rose 3 bps to 2.22%. The 30-year bond rose 5 bps to 3.27%.

Bank and brokerage credit-default swaps moved tighter across the board, showing increased investor confidence in the sector.

Primary slow but optimistic

There are issuers wanting into the high-grade primary, but are waiting on the sidelines for various reasons, sources said on Friday.

"There are some lurking, and we know they need to go, but it's a matter of when," one syndicate source said.

November is slated to be busier than October, "provided nothing negative happens," the source added.

New issue concessions have tightened slightly in recent days, which showed in Thursday's three trades, the source added.

A market source said that some companies are still in third-quarter earnings blackout, while others need a week or two before they'll be ready to price debt in order to file the necessary paperwork with the Securities and Exchange Commission.

"It's probably going to be Nov. 7 or after, and we're going to have little-to-no issuance until then," the market source said.

Pernod Ricard ratchets in

The $1.5 billion of 4.45% notes due 2022 from France's Pernod Ricard showed one of the highest gains on the day in trading, a source said.

The paper priced at 230 bps, at the tight end of guidance, and managed a gain of more than 30 bps. The source quoted them at a bid of 197 bps and offer of 192 bps.

The distillery is based in Paris.

Sonoco tranches tighten

Packaging manufacturer Sonoco Products priced $500 million in two parts on Thursday, and both notes were seen significantly tighter in next-day trading, a trader said.

The $250 million of 4.375% notes due 2021 were quoted at 203 bps bid, and an offer of 194 bps. The notes sold at 225 bps over Treasuries.

The reopened 5.75% notes due 2040 came in between 10 and 15 bps from their price of 245 bps over Treasuries. A trader quoted them at 234 bps bid, 230 bps offered.

The company is based in Hartsville, S.C.

PerkinElmer better

Following the trend of the day, the PerkinElmer 5% notes due 2021 were seen tighter in the secondary, a source said.

They were quoted between 25 and 35 bps tighter at 265 bps bid, and 255 bps offered.

The laboratory and diagnostics technology company is based in Waltham, Mass.

Bank/broker CDS tighten

Credit default swaps for big banks and brokerages were between 8 and 18 bps better across the board, according to a trader in that sector.

Among bank names, JPMorgan Chase & Co. saw its CDS costs tighten by about 18 bps to 137 bps bid, 147 bps offered. Citigroup Inc.'s costs were about 15 bps better at 230 bps bid, 240 bps offered while Wells Fargo & Co.'s CDS costs tightened by about 8 bps to 140 bps bid, 150 bps offered.

On the brokerage side, Goldman Sachs Group Inc. and Morgan Stanley each saw their CDS costs move in by 15 bps, the trader said. Goldman's costs were 315 bps bid, 325 bps offered while Morgan Stanley's were at 365 bps bid, 375 bps offered.

Merrill Lynch's CDS costs were quoted at 10 bps better at 390 bps bid, 410 bps offered.

Stephanie N. Rotondo contributed to this review

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