KfW, France's CFF sells bonds, foreign names invade primary; financials better in trading

By Andrea Heisinger and Cristal Cody

New York, April 15 - KfW and Compagnie de Financement Foncier sold bonds on Thursday as the high-grade market was again bare of corporate deals. Those that did price were on the emerging markets side, or sovereigns as many domestic names continue to be shut out of the market on earnings blackouts.

KfW sold $4 billion of two-year notes by mid-afternoon. This was followed by the $2 billion sale of three-year covered bonds by CFF.

Sovereign and emerging markets issues overtook the high-grade market, as they have for much of the week.

"We see this every time there's earnings [blackout]," a source said. "They see an opening and they jump in."

The market's tone was termed "unchanged" by one syndicate source late in the day, adding that "it was hard to tell, but I think things are coming at good spreads."

No new issues are expected in the final session of the week Friday.

In secondary trading, the financial sector continued to be the all-star on traders' minds, though some buyers are scouting for industrial high-grade debt, sources told Prospect News.

Paper from Citigroup Inc., Morgan Stanley, Goldman Sachs Group Inc. and other banks traded more than 5 bps tighter, according to sources.

"There still seems to be a pretty good tone in the market for financials across the board," one trader said Thursday. "The stock market in general's been a little better. People are still reaching for some yield and some spread."

In addition, the industrial sector also is strong, with bonds from Dow Chemical Co. and ArcelorMittal firmer on Thursday, sources said.

Meanwhile on Thursday, U.S. Treasuries were stronger across the board.

For example the yield on the 10-year benchmark Treasury note firmed 3 bps to 3.36% and the yield on the 30-year Treasury bond tightened 2 bps to 4.71%.

Elsewhere, the CDX Series 14 North American high-grade index was seen 1 bp tighter at a mid bid-asked spread level of 82 bps on Thursday, according to a market source.

Overall Trace volume fell 2% to about $14 billion, according to a source.

KfW sells short bond

German development bank KfW sold $4 billion in 1.25% two-year global notes at 99.86, according to an FWP filing with the Securities and Exchange Commission.

The notes (Aaa/AAA/AAA) were talked at mid-swaps plus 5 basis points.

The deal went head-to-head with an issue from Fannie Mae in the same sector. The U.S.-based lender also sold $4 billion in two-year notes.

Bookrunners were Bank of America Merrill Lynch, BNP Paribas Securities and HSBC Securities.

The German government-owned bank is based in Frankfurt.

Foreign issuers take primary

Issuers from countries other than the United States continued to take advantage of the otherwise empty high-grade market.

Several investment-grade rated deals were priced in the emerging markets sector, and that may not change any time soon.

"I don't see it getting too busy [next week]," a market source said of the prospects for U.S. corporates. He added that it was too early to get a solid count of how many deals were on the calendar in the coming week.

Another source said the coming week "looked about the same" as the current one, in terms of the number of deals.

The market's tone has not fluctuated much in the past couple of days, other than a bump in banking names on Wednesday following favorable earnings announcements.

CFF sells covered bonds

Compagnie de Financement Foncier sold $2 billion in 2.125% three-year covered bonds (Aaa/AAA/AAA) to yield Treasuries plus 55.65 bps, an informed source said.

This sale, along with a $1.5 billion deal by the Royal Bank of Canada on April 7, marks a return in the issuance of covered bonds.

"We're going to see more of these coming up," said a source who worked on the CFF deal.

Citigroup Global Markets, Barclays Capital, Bank of America Merrill Lynch, HSBC Securities and J.P. Morgan Securities were bookrunners.

The unit of mortgage lender Credit Foncier de France SA is based in Paris.

Financials strong on earnings

Financial investment-grade paper continued to firm in trading on Thursday, according to sources.

"Generically, it's about 5 bps tighter," one trader said.

For example, New York-based Goldman Sachs' benchmark notes due 2020 traded "another 5 bps tighter" on Thursday to 140 bps bid, 135 bps offered, a source said.

Also, New York-based Morgan Stanley's notes due 2020 firmed another 5 bps to 6 bps, the source said.

"Citi's paper stands out a little bit - probably 10 bps tighter from yesterday," the trader said.

New York-based Citigroup's 8.5% notes due 2019 traded 10 bps tighter at 190 bps bid, 180 bps offered.

The strong activity in financials in part may be from the earnings season underway, as well as an improved stock market, according to the trader.

"They're still looking for something with a little juice in it - and that's the financials. The industrials stuff still has a decent bid to it, but it's not moving up as much."

Industrials tight

In fact, some buyers are looking for industrials but are coming up short, a trader told Prospect News.

"I have accounts looking for industrials, they're so full on financial paper. It's tougher and tougher to find reasonably priced industrial paper," the trader said.

While industrial paper is "not as strong as financials, it's all tight."

ArcelorMittal's 9.85% notes due 2019 firmed 10 bps to 185 bps over Treasuries on Thursday, according to a source. Luxembourg-based ArcelorMittal is a steel company.

Elsewhere in the sector, Midland, Mich.-based chemical and plastics manufacturer Dow Chemical's outstanding notes also tightened on Thursday.

The 7.6% notes due 2014 firmed 5 bps to 105 bps, while the 8.55% notes due 2019 tightened 3 bps in trading to 173 bps, according to the source.

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