June ends with nearly $62 billion issuance; industrial issuers expected to dominate first part of July

By Andrea Heisinger and Paul Deckelman

Omaha, June 30 - Monday marked the end of a month of highs and lows, with issuance coming in at around $62 billion.

One source called it the slowest month of the year, hedging out March, which he called an "accomplishment."

"Market volatility remains and spreads remain wide," he said.

Issuers not having to come into the market mostly didn't, contributing to the slow month.

In the investment-grade secondary market Monday, advancing issues led decliners by a seven-to-six ratio, while overall market activity, reflected in dollar volumes, rose by 27% from Friday's pace.

Spreads in general were seen mostly little changed, along with Treasury yields; the on the benchmark 10-year note, for instance, edged out by 1 basis point to 3.97%.

A trader said that at the end of the day, "the Dow [Jones Industrial Average] tried to make a run at a negative. Bids got a little sketchy - but it was nothing worth reporting."

He also cited the impact of the upcoming holiday break - the fixed income markets will close early on Thursday and stay closed all day Friday - plus end-of-month and end-of quarter considerations stilling trading along with that fact that it was a summer Monday.

Holiday, oil keep issuers at bay

There were no new issues to speak of Monday, sources said, which was as expected before the long holiday weekend and in light of factors like continually rising oil prices.

"The first half of the month was definitely driven by industrials," a source said, looking back on June. "They [industrial issues] were up 35% for the first half of the year from last year."

This trend will likely continue into July until financials come out of blackouts.

Issuance should see a moderate spike in July, a source said, with issuance of about $70 billion.

Those who are ready to issue are likely eying next week as investors and traders alike take it easy leading into the Fourth of July holiday.

There was no primary or secondary trading to speak of Monday, a source said, which bodes the same for the rest of the week.

The market was seen as safe Monday, with one market source commenting that the 10-year Treasury was down to reasonable levels and the stock market was up.

"The market's actually looking pretty good today," he said.

Despite rough patches, the market ticked along in June mostly thanks to investors.

"The key is that this would never have taken place if it weren't for the fact that investors are resilient and are absorbing a lot of the record issuance," a source said.

The issuance for the first half of the year is up about 29% from the same time period last year, he said.

July outlook uncertain

The month of July is seen as improving slightly, but with the market still in a day-to-day status, it's hard to look more than a week ahead, a source said.

"I would guess July is going to be bigger, but it's hard to tell," he said.

J.P. Morgan Securities Inc. remains the top underwriter year to date, as well as for the month of June, while Citigroup Global Markets Inc. took the top spot for the second quarter.

Among possible new issues for the week is one from Australian bank ANZ which concluded a two-day roadshow for its issue of five-year senior notes on Friday.

There will be a call with the company Tuesday morning to talk about timing of the issue, a source close to the deal said.

No other details have been decided on or made public, he said.

J&J steady at tighter levels

Looking at some recently priced issues, a market source saw Johnson & Johnson's 5.15% notes due 2018 anchored around the 90 bps spread level versus Treasuries, in from the 103 bps spread at which the New Brunswick, N.J.-based medical products company priced $900 million of the bonds on June 18.

The other part of that deal, the $700 million of 5.85% bonds due 2038, meantime hovered around 116 bps, wider than the 113 bps at which the deal passed.

SLM Corp.'s 8.345% notes due 2018 were seen at 520 bps Monday. That's well outside the 465.7 bps mark at which the student-loan company priced $2.5 billion of the bonds on June 11.

Also seen trading well wide of issue were Bank of America NA's 4.90% notes due 2013, at 224 bps over versus the 185 bps spread at which the Charlotte, N.C.-based banking giant priced $2 billion of the bonds on April 29, as one piece of a two-part offering.

The other half of that deal, BofA's $4 billion of 5.65% notes due 2018, were seen having moved out to 251 bps over, versus the 190 bps level at which those bonds priced, also on April 29.

Suncor active at tighter levels

Suncor Energy Inc.'s 6.85% bonds due 2039 were being actively traded Monday at 217 bps over, well inside the 230 bps over spread at which the company priced $750 million of the bonds on June 3, as part of a two-part deal.

Back among the more established issues, BP Capital Markets plc's 4.875% notes due 2010 were one of the busiest bonds, although there was not that much price movement; the bonds tightened to the 62 bps level, although another trader saw them going out in the 80s.

Also on the upside, General Electric Co.'s 5.25% notes due 2017 tightened 10 bps to 170 bid. However, its General Electric Capital Corp. subsidiary's 5.45% notes due 2013 widened out by around 20 bps to 195 bps.

In the credit-default swaps market, a trader saw debt-protection costs for big banks 1 bps tighter to 4 bps wider; the troubled thrift Washington Mutual was 10 bps wider at 575 bps bid, 600 bps offered.

And he saw major brokerage's CDS costs ranging from 5 bps narrower to unchanged. Merrill Lynch's debt-protections costs, for instance, were steady at 250 bps over.

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