Optimism stalls in primary as House bailout vote fails; Wachovia tightens in secondary on Citi deal

By Andrea Heisinger

New York, Sept. 29 - Investment-grade bond market sources were reluctant to guess how Monday's jarring defeat of the government's bailout plan in the House of Representatives would affect the rest of the week.

Optimism had reigned in the past week as it appeared a plan would be approved by Monday's market open.

That was the case, but it still needed to pass the hurdles of the House and Senate, which wouldn't have happened until at least mid-week.

In the secondary, there was little action other than financial and broker names moving amid mergers and buyouts.

Apache gives issue terms

Apache Corp. announced the terms of its $800 million issue from late Friday, which was split into $400 million each of five- and 10-year notes.

The 6% five-year notes priced at 99.476 to yield 6.125%, or Treasuries plus 310 basis points.

The 6.9% 10-year notes priced at 99.593 to yield 6.958%, or Treasuries plus 310 bps.

Goldman Sachs & Co. and J.P. Morgan Securities Inc. ran the books.

Uncertainty on bailout failure

It was assumed by many on investment-grade syndicate desks that if a bailout bill was drafted over the weekend, it would be passed and it would improve market tone enough for some companies to issue.

"Looks like it will be another week with no issues," a source said Monday afternoon, after news broke that the House had rejected the bill.

Another source gave a more terse response.

"It's not good," he said.

At the market close, the Dow Jones Industrial Average was down more than 770 points amid panic of what the failure meant for the already weak financial world.

It also came on a day that started with an announcement that Citigroup, Inc. had bought the banking operations of Wachovia Corp. for a reported $2.2 billion.

The government brokered the deal over the weekend after it became clear that Wachovia was near collapse.

The deal means Citigroup will take on the first $42 billion of Wachovia's mortgage losses, with the FDIC taking on anything beyond that.

Also announced was the completion of Japan's Mitsubishi UFJ Securities' previously announced purchase of a $9 billion stake in Morgan Stanley.

Repeated bouts of optimism in the past month have been headed off with more negative headlines and failures of large companies.

This is considered somewhat the same by some, who hope that the panic will wear off in the next day or two.

"A lot of people weren't looking at the [bailout] plan to solve everything anyway," a source said. "It's just kind of back to how it has been where everyone's watching to headlines."

It was unlikely there would have been a lot of issuance Tuesday or Wednesday, a source said, due to the Jewish holidays.

"At some point things have to get better because this backlog's not going away," he said.

Wachovia tighter in secondary

Wachovia bonds were seen 20 bps to 30 bps tighter generically on the news of its buyout deal with Citigroup.

The company's 5.5% bonds due 2013 were the second most traded issue of the day as of early afternoon.

Morgan Stanley top trade

Morgan Stanley topped the list of most-traded bonds Monday with its 3.875% bonds due 2009.

This came after the company completed its previously announced sale of a stake in the company to Mitsubishi UFJ for $9 billion.

Volume down in secondary

As headline worries rattled already jittery markets, the investment-grade secondary bond market had low volume Monday.

It was looking "thin" in mid-afternoon trading, a source reported. The focus was again on financial names as more mergers and buyouts were announced.

It was unclear what Tuesday would bring, a source said, adding "one day at a time."

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