Issuers hope for Tuesday window as tone turns upbeat; Pernod firms; bank paper improves

By Andrea Heisinger and Cristal Cody

New York, Oct. 24 - Issuers chose to stand down on Monday on mixed headlines coming out of euro zone talks over the weekend, along with continued earnings.

By the time the market closed, the tone was more upbeat and syndicate sources said they were taking calls for potential deals on Tuesday.

"It felt better than it did at the open," a source said late in the afternoon, adding that he just got off of a call with a potential trade for the coming day.

Equities closed up on positive earnings from companies like heavy equipment maker Caterpillar Inc., along with the wrap-up of euro zone talks that are scheduled to resume on Wednesday. The Dow ended the day up more than 100 points, the source said.

"We have some people who have been waiting to sell so tomorrow might be their window before more bad news can come out," a syndicate source said.

Trading stayed mostly quiet, sources said, and overall trading volume was seen at about $10.5 billion on Monday.

"It was a mixed bag," one trader said.

Bank and financial paper traded about 5 basis points to 15 bps better, a trader said.

Bank and brokerage credit default swaps costs also were lower.

The 4.45% notes due 2022 that France's Pernod Ricard SA sold last week in its first deal since being raised to investment grade traded more than 30 bps tighter on Monday.

A round of earnings reports helped bonds from Caterpillar Inc. and Lorillard Tobacco Co. on Monday.

Caterpillar's bonds traded about 5 bps better on the day after the company reported a 44% jump in third-quarter income.

Lorillard Tobacco's notes traded 5 bps better on the day.

Kimberly-Clark Corp.'s bonds traded unchanged after the company reported third-quarter income fell 8%.

Procter & Gamble. Co.'s high-graded bonds traded about 2 bps firmer on Monday ahead of the company's earnings report release on Thursday.

The Markit CDX Series 17 North American high-grade index ended the day 3 bps tighter at a spread of 126 bps.

Treasuries closed lower across the curve as the market prepares for whether an overseas debt resolution emerges from a European summit meeting on Wednesday.

The benchmark 10-year Treasury note yield added 2 bps to end at 2.23%. The 30-year bond yield rose 1 bp to 3.27%.

Pernod comes in

Pernod Ricard 4.45% notes due 2022 traded on Monday at 197 bps bid, 192 bps offered, more than 30 bps tighter than Thursday's issue price, a trader said.

The company sold $1.5 billion of the notes (Baa3/BBB-) at a spread of 230 bps over Treasuries on Thursday.

The distillery is based in Paris.

Caterpillar firms

Caterpillar's bonds traded tighter on Monday.

A trader saw the 3.9% notes due 2021 bps better at 75 bps bid, 65 bps offered.

Caterpillar sold the notes at a spread of 85 bps over Treasuries on May 24.

The company is based in Peoria, Ill.

Lorillard Tobacco tightens

Lorillard's bonds firmed 5 bps in secondary trading on Monday, a trader said. The company reported on Monday that third-quarter profit fell nearly 3%.

The company's 8.125% senior notes due 2019 were seen late afternoon at 295 bps bid, 275 bps offered.

The notes were sold on June 18, 2009 at a spread of 428.9 bps over Treasuries.

The tobacco company is based in Greensboro, N.C.

Kimberly-Clark flat

Kimberly-Clark's 3.875% notes due 2021 traded flat on Monday at 75 bps bid, 65 bps offered.

The company's 5.3% bonds due 2041 also were quoted on Monday at 105 bps bid, 95 bps offered, unchanged since Friday, a trader said.

"The bonds are really illiquid," the trader said.

The company sold $250 million of the 3.875% 10-year notes at a spread of Treasuries plus 60 bps and $450 million of the 5.3% 30-year bonds at a spread of 80 bps over Treasuries on Jan. 27.

The consumer-products company is based in Irving, Texas.

CDS costs fall

Bank and brokerage credit default swaps costs dropped on Monday, reflecting greater investor confidence in the financial sector, a trader said.

Bank of America's CDS costs dropped 15 bps to 335 bps bid, 345 bps offered. Citi's CDS costs also fell 15 bps on the day, ending at 225 bps bid, 235 bps offered. JPMorgan's CDS costs fell 6 bps to 132 bps bid, 142 bps offered.

On the brokerage side, Goldman Sachs' CDS costs were seen 15 bps lower at 300 bps bid, 310 bps offered. Morgan Stanley's CDS costs fell 15 bps to 345 bps bid, 355 bps offered.

Merrill Lynch's CDS costs closed 10 bps lower at 390 bps bid, 400 bps offered.

Paul Deckelman contributed to this review.

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