Bank bonds stay in focus, tighten overall on financial earnings; Boeing Capital notes rise

By Andrea Heisinger

New York, Oct. 23 - New deals in the investment-grade bond market ground to a halt on Friday due to a combination of a lack of supply and continued earnings announcements.

Brazil's Petrobras sold $4 billion of notes in two tranches in the emerging market sector late in the day, but there was nothing to be had in the regular investment-grade market.

Most of the action in the high-grade market was in the secondary. Bank bonds remained the focal point as they moved tighter overall yet again.

The two new bonds sold the previous day by Boeing Capital Corp. were unchanged to slightly better in trading. The bond due 2014 was the star performer, while the 2019 mostly stayed at its pricing level.

A new bond from Black Hills Power Inc. held its gains before mostly disappearing from trading. The small sale from the utility tightened about 10 basis points.

Spreads were tighter in general as Treasury yields moved wider by the end of the day. The five-year note was quoted at 8 bps wider at a 2.44% yield and the 30-year bond was out 5 bps to yield 4.29%.

Earnings season to continue

The coming week is expected to have bond sales on par with the past week, as earnings announcements continue.

"There weren't a lot of surprises [this week]," a syndicate source said. "There wasn't anything too exciting. I don't think it even did anything [to the market]."

A couple of large banks took advantage of their emergence from earnings blackouts in the past week, including Citigroup Inc. and JPMorgan Chase & Co.

There could be some issuance from larger industrial names that have already reported, but "nothing's definite," a market source said.

"I'm sure there are a couple out there, but all we really saw [this week] was Boeing."

Boeing Capital notes edge up

The two tranches of notes sold on Thursday by Boeing Capital were unchanged to moderately better in the secondary on Friday, a trader said.

The 3.25% due 2014 outperformed the longer bond, quoted at 87 bps bid, 85 bps offered. It priced at 95 bps over Treasuries.

"It was a pretty tight market," a trader said. "It was bid at 85 [basis points] at one point, and I heard anywhere between 84 and 86 [bps] offered."

The 4.7% notes due 2019 were sold at 130 bps over Treasuries and were at 130 bps bid, 126 bps offered. Another trader quoted this tranche at 125 bps bid early in the day.

This tranche may have performed poorly because it was "priced a bit too aggressively," the trader said.

Black Hills Power 30-year tightens

A 6.125% bond due 2039 from electric company Black Hills Power Corp. remained improved in trading by late in the day, a trader said.

It was sold at Treasuries plus 187.5 bps, and he quoted it about 178 bps bid. It was officially bid at 180 bps, he said, adding "I know it's a couple [of basis points] tighter."

"There are no bonds out there," he said. "There's no offer. I think there were about $5 million of them sold."

A bid from a second trader early in the day was 175 bps bid, 165 bps offered.

Morgan Stanley bond leads trading

A 5.625% bond due 2019 from Morgan Stanley was one of the most-traded of the day by early afternoon, a trader said. It was quoted at Treasuries plus 222 bps.

The financial giant reported a third-quarter profit in the middle of the week, as did Wells Fargo & Co.

A couple of Wells Fargo bonds were also trading actively. The bank's 3.75% notes due 2014 were near the top in terms of volume and quoted at 133 bps over Treasuries.

Another bank bond popular with investors was a 5.125% due 2014 from JPMorgan Chase. It was selling at 161 bps over Treasuries.

One of the only industrial bonds to trade actively on Friday came from phone, internet and wireless company AT&T Corp. The company reported earnings on Thursday morning and showed a net income of $3.19 billion, which was a decline from the same quarter a year ago.

Bank bonds tighten

Bonds from bank names were 5 to 10 bps better overall, a trader in that sector said in late afternoon.

He credited third-quarter earnings announcements from American Express Credit Corp. and Capital One Financial Corp. as possible reasons for this move.

Capital One surprised some analysts by posting a profit of $425.6 million. American Express also beat analyst projections by posting a profit of $632 million after the market close on Thursday. This was a 22% decline by the credit card company from the same quarter the previous year.

"I'm not surprised," a trader said of bank bonds moving tighter. "That seems to be the trend. There is such an appetite for incremental yield. Investors think banks are a sure thing and too big to fail."

Capital One had one of the bonds with the biggest move on the day. Capital One Bank USA NA's 8.8% due 2019 was tighter by about 25 bps from the previous week. It was quoted at 284 bps.

Bank, broker CDS improve

Bank and brokerage credit default swaps were better across the board by late in the day, a trader said, moving in line with bank spreads.

Banks were quoted at 5 to 10 bps tighter. Brokerages were about the same, coming in 5 to 8 bps.

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