Widening spreads called old news; issuance window remains closed for time being; healthy calendar ahead

By Andrea Heisinger and Paul Deckelman

Omaha, March 7 - The week ended differently than it began, with no new issues and a negativity that could spill into the coming week.

The market opened with adverse headlines about jobless rates and spreads widening to record levels.

The latter was old news for many in the investment-grade market.

"We've been hearing this and seeing spreads get wider for a while now," a market source said. "It stopped having meaning about a month ago. Obviously, the secondary markets are getting raked over the coals worse than the new issue market."

There was definitely not a lot of trading going on Friday, a source said.

The average corporate spread was at Treasuries plus 272 basis points Friday versus Treasuries plus 264 bps Thursday.

This is compared to levels of Treasuries plus 93 bps on June 5, 2007, the source said.

Both those on the sell-side and investors have adjusted to the widened spreads, a market source said.

The source cited an example from Thursday.

One of the only deals in the market came from Kansas City Power & Light Co. with its $350 million of notes.

The issue was announced Wednesday, and went overnight to price Thursday.

This in itself was odd, the source said, but other factors of the deal were as well.

"It was surprising that it went overnight," he said. "It was weird the way it priced, with the par dollar price and the spread [of 275.6 bps]. It looked like how a hybrid would price."

In addition to this, the source said the company paid around 90 bps new issue premium.

"That's just insane," he said.

Other adjustments have also been made in the new issue market.

After a period of volatility it used to take a few days of stability for anyone to brave the market again.

Now, it only takes a day or two for people to jump in, a source said.

"If things improve for a day or two it's enough to get in to or out of the market," he said.

Robust calendar

There is a healthy new issue calendar for the coming week, which would make it busier than this past week of more than $10 billion in new issues.

This compares to last week's issuance of more than $24 billion.

The coming calendar is a mix of industrials and financials, but weighted toward financials, a source said.

Many of the smaller issuers were gotten out of the way this week, with few going over the $1 billion mark.

Those that did were Royal Philips Electronics NV, Wells Fargo Capital XII and J.P. Morgan Chase & Co.

Smaller issuers included Waste Management Inc., Kellogg Co., Mattel, Inc., Vectren Utility Holdings Inc., Praxair, Inc., Cigna Corp., Pitney Bowes Inc., Toyota Motor Credit Corp., Scana Corp., Public Service Electric & Gas Co. and General Electric Capital Corp.

Signs of weakness in trading

In the investment-grade secondary market Friday advancing issued led decliners by about a six-to-five ratio, while overall market activity, reflected in dollar volumes, fell about 13% from Thursday's levels.

A trader said that overall, "some stuff was weaker - people kind of took a little pain and went softly into the night."

He said that recently priced issues were mostly "out about 10" basis points from where they had been at the beginning of the week, as bad news from the financial sector continued to weigh down both halves of the market , non-financial and financial alike.

"All in all, there were definitely lighter flows, [and ] spreads were kind of 'unched' to leaking" from Thursday's levels. Bonds "tried to do better in the morning, but were not able to."

Kansas City steady

The trader noted that the new Kansas City Power & Light's new 6.375% notes due 2010, which had priced at 275 bps on Thursday, were trading around 274 bps bids on Friday because "nobody really cared to show anything."

The issue, he said priced at 275 bps over, when "original [price] talk was 200 bps."

He said that some of the new deals "were out worse [than 10 bps] - Computer Sciences Corp., for instance was out 25 bps from where they stood at the beginning of the week."

The company's new 5.5% notes due 2013 priced on Feb. 27 at 272 bps over comparable Treasuries and its 6.5% notes due 2018 debuted at 270 bps over.

In the financials he said, "we continue to see softness - stuff really widened out on [Thursday], and it really didn't get any better [Friday]."

A market source saw among the softer financials Citigroup's 6% notes due 2017, which widened out by nearly 30 bps to around the 270 bid level, Goldman Sachs' 6.25% notes due 2017, out nearly 20 bps to 280 bps, and Bear Stearns' 7.25% notes due 2018, nearly 25 bps wider at around 530 bps over.

Non-financial industrials dominated the upsiders, with Wal-Mart Stores' 5.8% notes due 2018 about 10 bps tighter at 140 bps, and Hewlett-Packard's 5.50% notes due 2018 in about 5 bps to 160 bps.

Countrywide moves lower

Countrywide Financial Corp.'s bonds "seemed a little lower again," a trader said, seeing the Calabasas, Calif.-based mortgage lender's 6¼% notes due 2009 down 1 to 1½ points at 87.5, while its more widely traded 6¼% notes due 2016 hardly traded at all, he said. He saw the company's 3¼% notes coming due on May 5 around 96.5, and "pretty active."

By way of contrast, the floating-rate notes coming due this year, last seen around 95.5 bid, 96.5 offered, "hasn't been trading at all - the last round lot was in January."

He said that "the shortest dated paper was down just modestly, maybe around ¼ point. But the longer you get out, the more they were getting hit. So I don't think the short paper is indicative of what it [the credit] was doing."

Another trader saw the '16s down a point at 71.5 bid, 73.5 offered, and the 3¼% notes unchanged at 95 bid, 96 offered.

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