Fears hinder new deals as market opens to ugly tone; financials, telecom paper widen

By Andrea Heisinger and Cristal Cody

New York, Sept. 22 - Stock markets in Europe and Asia sank overnight and the tone in the high-grade bond market was not good enough on Thursday for issuers to brave the primary.

Despite an ugly tone at the end of the previous day following an announcement from the two-day Federal Reserve Federal Open Market Committee meeting, some syndicate desks had been hoping at least one issuer would price a deal.

"We got slaughtered again," a market source said after the close when the stock markets again showed deep drops. The Dow ended the day down about 390 points.

"I guess we'll hope things shake out for next week," the source said.

There are no new deals expected for Friday. Issuance had been expected to slow after the previous week's flood of new paper, but not this sparse. There have been two new corporate trades and a quasi-sovereign deal from the World Bank for the week.

"If next week is better, it's going to be busy since this week was a non-event," a syndicate source said.

The Markit CDX Series 16 North American high-grade index eased another 6 basis points on Thursday to a spread of 146 bps.

"Definitely much weaker," a trader said.

Morgan Stanley's paper was seen trading "35 [bps] wider across the board," a trader said.

Bank of America Corp.'s paper moved out 30 bps to 40 bps in trading.

Telecommunication bonds also traded 10 bps to 20 bps wider. AT&T, Inc.'s paper moved 10 bps to 15 bps wider in trading.

Overall trading volume edged up to about $12.5 billion on Thursday.

Treasuries rallied as investors moved into safer haven debt on weaker economic data from China and a day after the Federal Reserve gave a somber outlook for the U.S. economy.

The 10-year Treasury note yield dropped to an historic low of 1.72% on Thursday from 1.85% the previous day. The 30-year Treasury bond yield fell to 2.79% from 2.99%.

Bank of America cheapens

Bank of America's 5% notes due 2021 moved out to 455 bps bid, 435 bps offered on Thursday, a trader said.

The notes were quoted at 409 bps on Wednesday.

Bank of America is based in Charlotte, N.C.

CDS costs rise

Credit default swaps costs rose sharply on Thursday, reflecting lessened investor confidence in the financial sector, a source said.

Bank of America's CDS costs widened 35 bps to 405 bps bid, 415 bps offered. JPMorgan's CDS costs traded 10 bps wider at 155 bps bid, 165 bps offered.

Brokerage CDS costs increased. Morgan Stanley's CDS costs widened 40 bps to 385 bps bid, 395 bps offered. Merrill Lynch's CDS costs widened 35 bps to 455 bps bid, 470 bps offered. Goldman Sachs' CDS costs were 25 bps wider at 285 bps bid, 295 bps offered.

AT&T cheaper

AT&T's 3 7/8% notes due 2021 widened 10 bps in trading to 174 bps bid, 168 bps offered in the secondary market, a trader said Thursday.

The telecom sector overall traded 10 bps to 20 bps wider on the day.

The telecommunications company is based in Dallas.

Paul Deckelman contributed to this review

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