Primary quiet ahead of Fed meeting; secondary stalls; markets unscathed by CIT bankruptcy

By Andrea Heisinger

New York, Nov. 2 - There was no significant activity in either the high-grade primary bond market or secondary trading on Monday ahead of Election Day and a two-day Federal Reserve meeting.

The fact that CIT Group Inc., a key lender to small and medium-size businesses, filed for Chapter 11 over the weekend "didn't help anything," a syndicate source said.

"We weren't expecting any [new issues] today, really, anyway," he added.

Issuance is expected to be "very light" in the next couple of days. There could be deals priced on Wednesday or Thursday.

There was little to trade in the secondary market, with the most recent deals pricing on Oct. 29.

One of those - Mead Johnson Nutrition Co. - saw its three tranches of notes priced via Rule 144A move 10 to 15 basis points tighter than where they were priced, according to a trader.

Spreads moved slightly tighter than the day before as Treasury yields widened. The 30-year bond was out by 4 bps to yield 4.27%, and the five-year note was wider by 3 bps to yield 2.34%.

Secondary void of activity

The high-grade secondary market was mostly empty of any sizable amount of trading activity by late afternoon, traders in both the financial and non-financial sectors said.

A trader of non-financial bonds said that he didn't think business lender CIT filing for bankruptcy over the weekend had anything to do with the lack of trading.

"What I think it is is portfolio managers have had a decent year, so they're sitting on their hands," he said. "No one's going to do anything unless there's a new deal priced cheaply."

He classified the day as "very quiet" and said much of the week will be that way.

Tuesday marks the beginning of the two-day Federal Reserve meeting, which combined with Election Day should leave the primary market mostly empty and consequently, the secondary market as well.

Primary outlook quiet

The remainder of the week is expected to have "moderate issuance," a syndicate source said. "I think we have two deals this week - smaller deals. We're not going to see any blockbuster [offerings]."

The coming days will be dead ones, as issuers wait to see what comes out of the Fed meeting.

"Everyone's skeptical about the next two days," the source said, adding that there are not any issues expected to price until Wednesday or after.

Monday got the week off to a lackluster start as "the equity market was choppy," a source said. "There was just a lot of instability in equities."

The CIT bankruptcy announcement had little to no effect on the high-grade bond market, sources said. An investment-grade-rated 4.25% bond due 2010 from CIT Group was listed as one of the top-traded of the day.

Mead Johnson bonds better

The three tranches of notes from infant formula company Mead Johnson Nutrition were each tighter in trading by the market close, a secondary source said.

The 3.5% note due 2014 was offered at 105 bps - about 15 bps better than its price the previous Thursday at 120 bps over Treasuries.

A 4.9% note due 2019 was also about 15 bps improved at 130 bps offered. It was sold at 145 bps over Treasuries.

The only bond of the three with a bid was the 5.9% bond due 2039. It sold at Treasuries plus 155 bps and was quoted at 146 bps bid, 141 bps offered.

Citi, Petrobras bonds top traded

Two Citigroup Inc. bonds done without the backing of the Federal Deposit Insurance Corp. were doing well with investors by early in the afternoon.

The bank's 8.5% bond due 2019 was at the top of trading by volume and was quoted at 280 bps over Treasuries.

A 6.125% bond due 2018 from Citi was also trading heavily at Treasuries plus 276 bps.

When asked why they were seeing high investor interest, a trader in that sector said they were "just high beta issues."

A 5.75% bond due 2020 from Petrobras International Finance continued its domination of the investment-grade secondary. The bond, along with one due in 2040 that priced along with it, has seen heavy trading since selling two weeks ago.

Investors have been grabbing for recent paper, and the Petrobras notes have been the focus of much of that attention.

Bank, broker CDS move wider

Credit-default swaps for bank and brokerage names were wider across the board by late afternoon, a trader in that sector said.

Bank names were out by 2 to 10 bps, he said, while brokerages were 1 to 4 bps wider.

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