Week of $31 billion issuance ends with no new deals; Volkswagen, HSBC Bank debt tightens

By Andrea Heisinger and Cristal Cody

New York, Aug. 6 - The high-grade market saw no new bond deals on Friday after four straight days of heavy issuance.

There was nearly $31 billion in new bonds sold for the week.

Many deals got done the previous day - strategically ahead of the U.S. payrolls data for July that came out in the morning.

The number of unemployed held steady for the month, as more jobs were shed, and a small amount of private sector jobs were added.

The coming week is not looking "quite as crazy," as one syndicate source said late in the day, but there should be a good amount of deals coming out.

"I don't think anyone has officially announced anything," she said, "but there have been a lot of calls."

The new bonds sold earlier in the week from Volkswagen International Finance NV and HSBC Bank tightened on Friday in the secondary market, according to sources.

Corporate high-grade debt has "performed well in the wake of a huge rally in Treasuries," a source said.

Treasury prices rallied throughout the day and pushed yields down on the worrisome job data.

The yield on the benchmark 10-year Treasury note fell 8 basis points to 2.82%. The yield on the 30-year bond ended the day 5 bps lower at 4% before briefly dropping to a 3.99% yield.

But in the high-grade market, it was mostly "quiet," a trader said.

"It definitely seemed like Friday summer light," a trader said. "It was a pretty busy week in new issue land - I think today was a breather. It looks like we're expecting a pretty big calendar next week as well."

Overall investment-grade Trace volume dropped 24% to about $9.5 billion, according to a source.

The CDX Series 14 North American investment-grade index rose 2 bps on Friday to a spread of 104 bps, a source said.

Week ahead might be slower

No one could say for sure at the end of the day what the coming week would look like. Ending the week with the somewhat dismal employment numbers may unsettle the market.

"We went awhile without any [negative] headlines," a market source said. "I don't know what will happen."

There will still be new deals, possibly starting on Monday since that has been the trend for the past couple of weeks.

"I would imagine we'll see something, but I'm not sure what," the source said. "We'll see what the open's like."

Volkswagen International Finance firms

In the secondary market, the new debt from Volkswagen International Finance, which sold $1.75 billion of notes (A3/A-) in two tranches late Thursday under Rule 144A, firmed considerably.

The tranche of 1.625% notes due 2013 priced at a spread of 93 bps over Treasuries. Early Friday, the notes were seen tighter at 84 bps bid, 79 bps offered.

The second tranche of 4% notes due 2020 priced at Treasuries plus 125 bps.

"Wow. They were offered at 105 today," a trader said of the 4% paper. "They were bid earlier just before that at 110."

The financing arm of Volkswagen is based in Amsterdam.

HSBC sells three tranches

The new notes that HSBC Bank priced on Thursday gained strength the next day in the secondary market, a trader said.

HSBC Bank sold $3.25 billion of notes (Aa2/AA/AA) in three tranches, which included floating-rate notes due 2013 and a tranche of 1.625% notes due 2013, which priced at a spread of Treasuries plus 87.5 bps.

The 1.625% notes firmed in trading on Friday.

"It's offered at par 20. I'm not seeing a bid on that one but it looks like it's holding out to outperforming. Given that it's a 1.625% coupon and a private placement issue, they've performed well," a source said.

A tranche of 4.125% notes due 2020 that priced at 130 bps over Treasuries firmed 8 bps in the secondary.

"That's amazing," a trader said when looking at activity on the notes Friday afternoon. "I see them offered at a yield of 122 over - they tightened that much. The bid size is basically par. Considering how much the Treasury market rallied today, I'd say they're holding in quite nicely."

The banking subsidiary of HSBC Holdings plc is based in London.

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