Stability issues stall high-grade deals; secondary market hushed for investment-grade traders

By Andrea Heisinger and Cristal Cody

New York, Feb. 17 - New deals eluded the high-grade bond market for the second day in a row on Wednesday due to a combination of jittery issuers and market conditions while the secondary market continued to be calm.

A market source said that some issuers had been lined up to sell bonds at the top of the week, but no one had yet pulled the trigger.

"No one wants to be the first one in," he said.

The secondary market remained quiet for investment-grade traders and investors, but trading did pick up overall, according to sources.

"Still no new issues," another source lamented on Wednesday.

Overall Trace volume, though, jumped 50% to more than $13 billion, according to a market source.

The market "seemed quiet today in corps," one trader said. "[with] the IGs in a couple of bps."

The CDX Series 13 North American high-grade index tightened 2 bps to a mid bid-asked spread level of 96 bps.

Meanwhile, Treasuries reversed Tuesday's course and eased on Wednesday. The yield on the 10-year benchmark Treasury note was seen 7 bps weaker at 3.73%, while the yield on the 30-year Treasury bond ended the day at 4.70% from 4.63% the previous day.

In secondary trading, Walgreen Co.'s outstanding notes widened on the drugstore chain's announcement it would acquire New York-based drugstore chain Duane Reade Holdings, Inc. for $1.075 billion in cash and the assumption of debt.

Elsewhere in the secondary, the industrials sector was mixed, while the financials sector tightened, with paper from Citigroup Inc., Bank of America Corp. and others firmer by more than 10 basis points, according to a source.

Potential issuers stall sales

New deals were nowhere to be seen yet again - the latest in a growing string of days without activity in the primary.

"It would be nice to have some [new] deals to work on," a syndicate source said. The last corporate bonds to be sold in the high-grade market were on Feb. 11, when Life Technologies Corp. priced a split-rated deal.

"We have issuers who want to jump in," the source added.

These potential issuers continue to wait for adequate market stability and a "go" call from the bookrunners.

News came out on Wednesday that drug store chain Walgreen's would acquire rival Duane Reade Holdings in a deal totals about $1.1 billion, including $618 million paid in cash and the assumption of $457 million of Duane Reade's debt. The deal is to be financed by cash at hand.

A market source said late in that day that he hadn't heard any buzz about a potential bond sale by Walgreen's to fund it.

Sources said they were hoping for a new deal or two in Thursday's market to break the drought of sales.

"It would be nice to see someone [issue]," a source said. "It's like everyone's just waiting on the sidelines for something to happen."

Walgreen's wider

Walgreen's notes due 2019 moved out on the deal news, sources said.

The outstanding 5.25% notes from the nation's largest drugstore chain was wider at 85 bps bid, 67 bps offered late Wednesday from 75 bps bid, 65 bps offered on Tuesday, one trader said.

Another source also noted that Walgreen's paper is "wider today. I saw the '19s about 10 bps wider, but they may have been [even] wider."

Elsewhere, the Deerfield, Ill.-based company's existing 4.875% notes due 2013 were not seen moving in secondary trading by sources.

"Nothing on the '13s," a trader said.

Financials tighter

The financials sector found a leg to stand on Wednesday as paper continued to tighten for a second day, according to a source.

For example, Bank of America's 7.375% notes due 2014 tightened 9 bps to 193 bps over Treasuries.

Also, Bank of America's 6.5% notes due 2016 firmed 13 basis points to 161 bps over from 174 bps on Tuesday and 180 bps in Friday's trading. The notes had tightened 5 bps on Tuesday in trading to 225 bps bid, 235 bps offered, according to a source.

Also in trading, the Charlotte, N.C.-based bank's 7.625% notes due 2019 were tighter by 13 bps at 223 bps on Wednesday, a source said.

Meanwhile, New York-based Citigroup's 6.375% notes due 2014 firmed 15 bps to 265 bps, according to a source.

In addition, Citigroup's 8.5% notes due 2019 tightened to 276 bps from 288 bps a day earlier.

Elsewhere in the sector, New York-based Goldman Sachs Group Inc.'s 6.15% notes due 2018 were seen tighter at 169 bps from 180 bps on Tuesday.

Dow Chemical mixed

The industrials sector was mixed on Wednesday, a source said.

For example, Dow Chemical Co.'s 7.6% notes due 2014 widened 8 bps to 185 bps.

Meanwhile, the Midland, Mich.-based chemical and plastics manufacturer's 8.55% notes due 2019 were 5 bps tighter at 230 bps over on Wednesday.

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