Busy week ends with no new issuance, Verizon on horizon; spreads tighten; CDS costs decline

By Cristal Cody and Aleesia Forni

Virginia Beach, Va., Sept. 6 - Friday's high-grade bond market was empty of new deals, though the shortened post-Labor Day week had seen several packed primary sessions.

More than $20 billion of bonds priced during the week.

The total exceeded sources' expectations of $15 billion to $20 billion of new issuance for the week.

Sources continue to expect a large deal from Verizon Communications Inc., with one syndicate banker predicting the company will sell during the Sept. 9 week.

The banker is expecting the size to come in "up to $30 billion."

The telecommunications company has been predicted to price the large deal to finance part of its purchase of Vodafone Group plc's stake in Verizon Wireless.

In the secondary market, bonds in the telecommunications sector remain heavily traded, while high-grade bond spreads tightened on the day, sources said.

"Credit spreads were modestly tighter in the holiday-shortened week, despite the continued overhang of potential U.S. military action in Syria," Barclays analysts said in a note on Friday.

The Markit CDX Series 20 North American Investment Grade index fell 2 basis points to a spread of 82 bps on Friday.

In the secondary market, Kohl's Corp.'s 4.75% notes due 2023 (Baa1/BB+/BBB+) traded flat at 180 bps bid, 175 bps offered earlier in the day, according to a trader.

The Menomonee Falls, Wis.-based department store chain sold $300 million of the notes on Thursday at a spread of Treasuries plus 180 bps.

Spreads in the Canadian high-grade market - which saw several "chunky-sized deals" over the week, including Loblaw Cos. Ltd.'s C$1.6 billion and Bell Canada's C$1 billion offerings on Thursday - went out weaker on Friday, an informed source said.

"They kind of knocked our spreads wider, just because of the size and some of the concessions we saw," the source said.

Ford goes investment grade

Ford Motor Co. was upgraded to investment grade by Standard & Poor's on Friday, which pushed the company's debt only slightly higher.

The 7.45% notes due 2031 were a point better at 118 bps bid, 119 bps offered, according to one market source.

Another trader said the 4.375% notes due 2023 were also a point higher at 97, and the 7% notes due 2015 inched up a touch to 108 3/8.

S&P said its upgrade was due to improved sales in North America as well as in China and Europe. Additionally, the company has improved its pension funding and is attempting to diversify its profits.

Gimme Credit LLC analyst Evan Mann said the rating revision was expected.

"Improved operating results and cash flow generation along with continued debt reductions should lead to stronger credit ratios over the intermediate term," he wrote in an afternoon comment. "The company has now reached its goal of restoring its investment-grade rating."

Ford has already been raised to investment grade by Moody's Investors Service and Fitch Ratings, which rate it Baa3 and BBB-, respectively.

S&P also lifted General Motors Co.'s outlook to positive from stable on Friday.

Bank CDS costs decline

Investment-grade bank and brokerage credit default swap costs mostly declined on Friday, a market source said.

Bank of America Corp.'s CDS costs declined 1 bp to 107 bps bid, 111 bps offered. Citigroup Inc.'s CDS costs firmed 1 bp to 100 bps bid, 104 bps offered. JPMorgan Chase & Co.'s CDS costs were unchanged at 90 bps bid, 94 bps offered. Wells Fargo & Co.'s CDS costs fell 1 bp to 64 bps bid, 68 bps offered.

Merrill Lynch's CDS costs declined 3 bps to 102 bps bid, 109 bps offered. Morgan Stanley's CDS costs tightened 1 bp to 140 bps bid, 145 bps offered. Goldman Sachs Group, Inc.'s CDS costs firmed 1 bp to 130 bps bid, 134 bps offered.

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