Issuers vacate market as 'chaos' starts the day in credit; new bonds flat in trading

By Andrea Heisinger and Cristal Cody

New York, Aug. 11 - A day after a deluge of new investment-grade debt was priced, issuance once again stalled on Thursday.

A sale of 30-year U.S. Treasury bonds did not go as well as hoped, and that, on top of some economic data, left the market to absorb the large number of new deals from Wednesday, when about $8.175 billion of paper was sold in eight offerings.

"That was pretty much our whole calendar," one syndicate source said, referring to the amount of issuance expected for the week. There had been between seven and 10 sales expected for the week.

Jobless claims also came out for the day, and although slightly lower, that bit of data was overshadowed by another dip in the stock markets and continued unease about European banks.

One market source said that most potential issuers already priced for the week and also want to see how some of the new bonds perform in trading.

"We're all watching [performance]," the source said. "Yesterday was big."

A syndicate source said that "credit was trading off" to start the day, and things never improved.

"It was a chaos day in the morning," he said. "Everything was marking. The tone wasn't that bad, but we were all over the place."

There could be activity in the primary on Friday if an issuer needs to price debt before the weekend, but otherwise it's a wait until the following week, he said.

The new bonds sold the previous day traded flat to slightly weaker on Thursday.

Dominion Resources, Inc.'s notes were flat in trading on Thursday.

Berkshire Hathaway Inc.'s two tranches of fixed-rate notes sold the previous day widened in trading over the day, before recovering late afternoon, sources said.

Procter & Gamble Co.'s five-year notes traded about 2 basis points tighter on the bid side.

Baker Hughes Inc.'s notes traded about 1 bp better, a trader said.

The Markit CDX Series 16 North American high-grade index eased 2 bps to a spread of 117 bps, according to Markit Group Ltd.

Overall trading volume fell nearly 10% to about $13.5 billion.

Treasuries saw major losses on Thursday after weak demand of the government's $16 billion of 30-year bonds. The 30-year bond yield closed the day up 25 bps to 2.34%.

The 10-year benchmark note yield rose to 2.34% from 2.1%.

Dominion around issuance

Dominion Resources' notes were seen trading unchanged on the bid side from the issuance price on Thursday, a trader said.

The 1.95% five-year senior notes traded at 105 bps bid, 102 bps offered.

The company sold $450 million of the senior notes, 2011 series D, (Baa2/A-/BBB+) on Wednesday at a spread of Treasuries plus 105 bps.

The energy transporter and producer is based in Richmond, Va.

Berkshire mixed

Berkshire Hathaway's two tranches of fixed-rate notes (Aa2/AA+/A+) sold on Wednesday traded wider on Thursday. A trader saw the 2.2% five-year notes at 135 bps bid, 130 bps offered. The company priced the notes due 2016 at a spread of Treasuries plus 130 bps.

Later in the day, a trader on another desk saw the five-year notes at 128 bps offered.

The tranche of 3.75% notes due 2021 also widened to 162 bps bid, 157 bps offered in late afternoon trading before going out at 155 bps bid, the traders said. The notes priced at 160 bps over Treasuries.

The holding company for various subsidiaries is based in Omaha, Neb.

P&G firmer

Procter & Gamble's new five-year notes (Aa3/AA-) sold on Wednesday traded better on the day, traders said.

One trader saw the notes at 65 bps bid, 60 bps offered, while later in the day, another source quoted the notes at 64 bps bid, 62 bps offered.

The company sold $1 billion of 1.45% notes due 2016 at a spread of Treasuries plus 67 bps.

The personal products company is based in Cincinnati.

Baker Hughes flat

Baker Hughes 3.2% senior notes due 2022 (A2/A) traded on Thursday at 107 bps bid, 104 bps offered, a trader said. The company sold $750 million of 3.2% 10-year senior notes (A2/A) at a spread of Treasuries plus 108 bps on Wednesday.

The oilfield services company is based in Houston.

Bank/broker CDS costs

A trader said that investment-grade bank and brokerage credit default swaps costs were anywhere from unchanged to 15 bps higher on Thursday, indicating less investor confidence in sector.

"Nobody was in the minus [i.e., cost declining] column today," the trader said. "The rally [in stocks] didn't do them much good. Somebody - a couple of analysts - came out and slammed them with a downgrade, on their earnings."

The trader added, "How anybody could try and predict earnings on these banks is beyond me - but they do."

Paul Deckelman contributed to this review

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