Primary's slow pace of issuance continues; Caterpillar, Pfizer bonds weaker, McDonald's better

By Andrea Heisinger

New York, Jan. 26 - The primary investment-grade bond market was mostly dead Monday, market sources said, as the week got off to a slow start.

Sources said they were not sure if the slowdown had to do with the number of companies announcing massive layoffs, or the fact that it was Monday.

In the secondary, volume was low and some of the companies laying people off or announcing earnings were seen moving. Most of the moves were not dramatic.

Slow primary seen normal

Primary market sources were generally unconcerned that there was little in the way of new issuance Monday.

"We usually have kind of a slow start to the week," one source said. "I think that rush we had at the beginning [of 2009] is maybe over. We're back to two or three days [of issuance a week]."

Because of the lack of new issues, it was hard to peg how much the dire news of layoffs at several companies affected anything.

Among the companies cutting thousands of jobs were Caterpillar Inc., Starbucks, Philips Electronics and Pfizer Inc.

Pfizer announced 8,000 job cuts in the wake of its planned merger with rival drug maker Wyeth.

These headlines "didn't really do much" to the market, one source said.

"I think we'll still see issuers tomorrow," he said.

Some companies remain in earnings blackout, which may also account for the partial slowdown, he said.

When asked what the new issue volume looked like for the week, one source said there were a few names on the calendar.

Another said it will be "busier than last week."

Citi reopens FDIC floaters

Citigroup Inc. announced terms of a reopening of an issue of floating-rate notes due 2010 that are backed by the Federal Deposit Insurance Corp.

The company added $100 million to its issue of floaters with a coupon of three-month Libor plus 55 basis points. The reopened notes priced at 100.8231.

This brings total issuance to $1.35 billion, including $1.25 billion issued Dec. 9.

Bookrunner was Citigroup Global Markets Inc.

McDonald's bonds in slightly

Outstanding bonds for McDonald's Corp. were seen "a little tighter, but not much change" a trader said late Monday afternoon following an earnings announcement earlier in the day.

The fast-food company reported fourth-quarter profit was down 24% from a year ago, but that the results beat analysts' expectations.

The company had net income of $985.3 million versus $1.27 billion a year ago.

Caterpillar bonds weaken

Heavy machinery manufacturer Caterpillar bonds were seen generally weaker Monday afternoon, a trader said.

It was one of a handful of companies that announced layoffs amid a worsening financial crisis. The company's cuts were more massive than others, with 20,000 jobs being axed.

Bonds were seen 5 bps to 10 bps weaker overall, the trader said.

Pfizer out slightly

Pfizer bonds were seen 1 bp to 2 bps weaker Monday afternoon, a trader said, on the day it was announced it would buy rival drug maker Wyeth for $68 billion.

In addition to the merger news, it was announced there would be about 8,000 job cuts for Pfizer in conjunction with the buyout.

Trading volume slows

The volume in the secondary market was seen lower Monday from the previous week, a trader said.

"It's pretty quiet today," he said. "It's kind of a typical Monday. That's how it's been lately. We were pretty busy last week, and Friday was busier."

In addition to those companies cutting jobs whose bonds were seen moving around, there were others that seemed fairly oblivious to the news.

Philips Electronics is cutting 6,000 jobs, but the company's bonds were not seeing much movement in the afternoon, the trader said.

Starbucks also announced more layoffs but had no recent outstanding bonds to look at, a trader said.

B of A top traded

Bank of America Corp. saw its 3.125% bonds due 2012 as the top traded early Monday afternoon.

The company remained in the spotlight with continued headlines regarding John Thain, the former head of Bank of America's Merrill Lynch unit, and news that it's keeping the fixed income indexed from Merrill Lynch after its acquisition.

Bank, broker CDS tighten

Bank and broker credit-default swaps were each seen coming in marginally Monday afternoon, a trader said.

The costs for each were seen 5 bps to 15 bps tighter, he said.

PSEG in, Citi out

PSEG Power and Citigroup were each seen as one of the day's big movers late Monday.

PSEG was in the news after proposing a power and gas investment totaling nearly $900 million.

The utility's 7.75% bonds due 2011 were seen tightening nearly 50 bps.

Citigroup's 5% bonds due 2014, on the other hand, were about 80 bps wider.

The company took a beating in the press after it was found it was purchasing a new private jet for its fleet.

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