Toyota Motor Credit issues, adds on; market virtually shuts down ahead of holiday

By Andrea Heisinger and Paul Deckelman

Omaha, July 2 - New issues from Toyota Motor Credit Corp. made up the bulk of investment-grade activity Wednesday.

Sources said they saw a stagnant market yet again ahead of the July 4 holiday and an early market close Thursday.

"I don't think anyone's working today, or much of the rest of the week for that matter," a source said.

In the investment-grade secondary market Wednesday, advancing issues led decliners by a better-than seven-to-six ratio, while overall market activity, reflected in dollar volumes, rose by 17% from Tuesday's pace.

Spreads in general were wider, as Treasury yields declined; the yield on the benchmark 10-year issue, for instance, tightened by 4 basis points to 3.96%.

Toyota sells floaters

Toyota Motor Credit priced an issue, as well as released terms of an add-on for a previous issue.

The company priced $205 million one-year medium-term floating-rate notes Wednesday at par to yield Federal Funds plus 50 bps.

Agents for the issue were J.P. Morgan Securities Inc. and Citigroup Global Markets Inc.

Toyota also added $50 million to an issue priced Tuesday, bringing the total to $350 million.

It is also priced at par to yield Federal Funds plus 50 bps.

J.P. Morgan and Merrill Lynch, Pierce, Fenner & Smith Inc. were agents for both parts of the issue.

Issuers take early holiday

It wasn't market conditions, but the upcoming holiday, that kept issuers away from the market Wednesday.

Sources said there are a few potential issuers coming up, leading to a moderate amount predicted for the week ahead.

Issuance flows have been disrupted as of late, a source said, making it difficult to tell whether negativity in other sectors is having an impact on the investment-grade bond market.

Continually rising oil prices is one factor that may be scaring issuers away, he said.

"We just can't tell, at least until there's some volume returning to measure things," he said.

The coming week is expected to have about the same amount of issuance as past weeks, totaling between $10 and $15 billion.

Pre-holiday sales hurt spreads

A trader said that despite the nominally greater volume on Wednesday, "there's not much going on in the business world, that's for sure," on the last full trading session of this abbreviated pre-holiday week. U.S. fixed-income markets are slated to officially close at 2 p.m. ET on Thursday - although, realistically, many participants will already be long gone by then - and the domestic financial markets will close completely on Friday, July 4.

He said that spreads started out during the morning 1 or 3 bps tighter, "at the most," but then ended up "a little bit wider," out around 5 bps on the day. "Throughout the day," he said, "I think people, going into a long weekend, were trying to get out of positions as much as they could, and it sure looked like spreads were trying to force their way wider, as people were selling stuff."

Market activity was hurt by the recent dearth of new-deal activity - the last significant deal to come down the chute was the $300 million 7.25% 2013 GS Caltex Corp. offering a week ago and the last really big one was the $800 million Prudential Finance Inc. offering of 9% bonds due 2068, on June 24.

"I think everybody [who might want to issue bonds] is keeping their powder dry until next week," the trader said, "and that's why we're seeing some pressure on spreads - everybody's trying to raise some cash so that once that calendar heats up again, which it will, they're going to have plenty of cash on hand."

Starbucks widens a little

The trader saw Starbucks Corp. bonds not much traded and at only slightly wider levels following Tuesday's announcement by the Seattle-based coffee bar operator that it will close 600 of its stores nationwide and could eliminate as many as 12,000 jobs in response to sagging sales of its pricy Frappuccinos and other exotic coffee concoctions.

He saw the company's 6.25% notes due 2017 at levels around 275 bps bid, 265 offered, "maybe about 5 bps wider" than the levels they held pre-news, "so [the news] has really been no impact."

He suggested that the slight widening "really wasn't a major event," probably due more to "general market conditions," with spreads generally wider on the tighter Treasury levels, than having anything specifically to do with Starbucks per se.

Bud bonds steady

He saw Anheuser Busch Cos. Inc.'s bonds littler changed in recent days, even as the iconic St. Louis-based brewer prepares to defend itself from a hostile takeover bid by Belgian-Brazilian beer behemoth InBev, which hopes to guzzle down the largest U.S. suds maker.

He saw Bud's 2015 bonds offered at 210 bps over Treasuries, its 2017s at 275 bps over, its 2016 notes trading at 290 bps bid, 260 bps offered, and its 2037 bonds at 250 bps bid, 230 bps offered.

"It's a pretty flat credit curve across the board," he remarked, with nothing having gone anywhere over the last few sessions.

Financial CDS levels steady

A trader saw the credit-default swap costs of protecting big-bank and major brokerage papers against a possible default essentially steady across the board. He quoted Merrill Lynch's debt-protection costs at 250 bps bid, 260 bps offered.

CIT widens out

Back in the cash-bond market, a source saw CIT Group Inc.'s 5.80% notes due 2011 about 30 bps wider at 1,040 bps over, giving back some of the gains notched on Tuesday after the New York-based financial company announced that it was unloading its nearly $10 billion portfolio of subprime mortgages and getting out of the troubled mortgage business altogether.

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