Investment grade slows to standstill following year's biggest day for new deals

By Andrea Heisinger

Omaha, Aug. 9 - Issuance of investment-grade bonds ground to a near halt Thursday, one market source said, after a busy day of activity Wednesday with $15 billion in new issues.

"Slow? It's more like at a standstill," the source said. "The market was a little squeamish this morning."

The sudden about turn was because of news out of Europe that hit investment-grade paper in particular, leading to some widening of spreads, according to an informed source.

"You definitely saw a lot of short-end paper for sale in the investment-grade realm."

After a weeks-long drought where new deals came at a trickle because of adverse market conditions, things had shaped up enough Wednesday for issuers to feel safe.

"A window opened yesterday [Wednesday] and, well, that window closed today," a market source said.

But despite the weak tone, many of Wednesday's deals were trading with tighter spreads in the secondary market Thursday, according to a market source.

Kraft Foods Inc. issued a $3.5 billion, five tranche deal. Thursday the 10-year 6.5% notes were trading 5 basis points tighter at 165 bps over Treasuries while they priced at 170 bps.

EnCana Corp. saw its $500 million in 6 5/8% notes that priced at Treasury plus 163 bps gain to 159 bps Thursday.

PPL Electric Utilities Corp. had $250 million in 6.45% senior secured bonds price at 143 bps, and they were trading at 140 bps Thursday.

Wednesday essentially turned into a one-day window of opportunity for a big backlog of issuers ready to tap the market.

"Yesterday people felt better about the markets," said a buy-side source.

"Also, the dealer desks had been tapped on the shoulder and told to get their risks down. And then as the market started to rally on Wednesday everyone was caught short because they had gotten their risks down and it was a huge short-covering rally, and a good time to buy paper from the issuer."

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