Primary market muted as Treasuries yields climb; JPMorgan widens; high-grade bonds ease

By Cristal Cody and Aleesia Forni

Virginia Beach, Aug. 15 - The high-grade primary bond market was empty of new issuance on Thursday as volatility in Treasuries kept issuers on the sidelines during the session.

U.S. Treasuries yields climbed on the day, while encouraging economic data escalated concerns that the Federal Reserve will taper its bond purchasing program in the near future.

The weak market tone on Thursday came at the heels of what had been three solid sessions of new issuance in the investment-grade bond market.

Issuers have priced roughly $13.5 billion of new bonds during the week.

Players are expecting the week to end on another quiet note Friday, which would leave the week's total shy of earlier predictions of a $15 billion to $20 billion week.

"Don't think we'll see any [new issues] tomorrow," one banker said near the end of the session, adding that the weaker tone coupled with the end-of-summer lull will keep issuers away.

The source said activity could pick back up on Monday.

High-grade bonds traded softer over the day and finished about 7 basis points weaker overall after moving out 3 bps to 5 bps in midday trading, sources said.

New paper from JPMorgan Chase & Co., McCormick & Co., Inc. and Viacom Inc. eased along with other bonds in the secondary market, market sources said.

JPMorgan's 5.625% subordinated bonds due 2043 sold on Wednesday were quoted 8 bps wider.

The Markit CDX Series 20 North American Investment Grade index widened 5 bps to a spread of 80 bps.

JPMorgan widens

JPMorgan's 5.625% subordinated bonds due 2043 (A3/A-/A) sold on Wednesday widened to 198 bps bid, 196 bps offered in Thursday's secondary market, a trader said.

The New York City-based financial services company priced $750 million of the bonds at a spread of Treasuries plus 190 bps.

McCormick softens

In other trading, McCormick's 3.5% notes due 2023 sold in the previous session softened to 88 bps bid, 84 bps offered, a trader said.

The notes (A2/A-/) had tightened late Wednesday to 86 bps bid, 84 bps offered after the Sparks, Md.-based spice company sold $250 million of the issue at Treasuries plus 90 bps.

Viacom off earlier strength

Viacom's notes (Baa2/BBB/BBB) sold earlier in the week eased in the secondary market over the day but still traded tighter than issuance, a trader said.

Viacom's 4.25% notes due 2023 eased to 175 bps bid, 172 bps offered, wider than where the notes traded on Tuesday at 169 bps bid, 166 bps offered.

The company sold $1.25 billion of the notes at a spread of Treasuries plus 178 bps on Monday.

The tranche of 5.85% bonds due 2043 priced in the same offering widened to 213 bps bid, 210 bps offered on Thursday from Tuesday's quote of 206 bps bid, 203 bps offered, the trader said. The New York City-based entertainment company sold $1.25 billion of the 30-year bonds at Treasuries plus 220 bps.

Bank/brokerage CDS costs rise

Investment-grade bank and brokerage CDS costs rose in Thursday's session, a market source said.

Bank of America Corp.'s CDS costs eased 6 bps to 112 bps bid, 116 bps offered. Citigroup Inc.'s CDS costs rose 7 bps to 105 bps bid, 109 bps offered. JPMorgan Chase & Co.'s CDS costs increased 6 bps to 87 bps bid, 91 bps offered. Wells Fargo & Co.'s CDS costs rose 3 bps to 67 bps bid, 71 bps offered.

Merrill Lynch's CDS costs widened 5 bps to 107 bps bid, 113 bps offered. Morgan Stanley's CDS costs eased 7 bps to 143 bps bid, 147 bps offered. Goldman Sachs Group, Inc.'s CDS costs increased 7 bps to 133 bps bid, 137 bps offered.

Paul Deckelman contributed to this review.

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