Like the parable of the elephant sitting in the VW Beetle, whatever news the market itself has to offer over the next couple of weeks is likely to be crowded out by news from the wider world.
With bond market volume having slowed down over the past couple of weeks and a conspicuous lack of blockbuster issues in the corporate market, many are adopting a wait-and- see attitude.
Tuesday’s presidential election is shaping up to be the closest that anyone can remember. Thursday’s Producer Price Index (PPI) is likely to be the last news update worthy of influencing monetary policy ahead of the Nov. 15 Fed meeting.
The meeting’s timing after the election would presumably give the Fed a freer hand, but trends on the inflationary front are far from clear at this point. The most recently published indicators, Friday’s jobs numbers, saw October unemployment cling to its low 3.9 percent, but non-farm payrolls increased only moderately.
So unambiguous indicators are few and far between, and those predicting a change in rates are in the distinct minority.
In the meantime, the markets were relatively tame this week, with stocks zig-zagging and bond performance mixed in the final analysis.
Treasuries saw everything from five years and longer go down in price. Investment grade bonds, on the other hand, ended the week mixed, with spreads in certain sectors, such as financials, tightening slightly.
While issuance was up last week, at about $17.1 billion versus $12.1 billion the week before that, most of this continues to be concentrated at the very highest end of the credit spectrum.
After the enthusiastic reception accorded Fannie Mae’s $7 billion issuance of 10- and 30- year Benchmarks, Federal Home Loan Bank ended the week on a surprising note with a $3 billion two-year global offering. The issue, which was lead managed by Deutsche Bank and Barclays Plc, priced at a spread of 49 basis points above the 6.375 percent October 2002 Treasury note, meaning that FHLB had to give its usual concession and price the issue two basis points cheaper than the equivalent Fannie/Freddies.
Looking ahead, while there has still been no word about some of the larger issues, particularly in telecommunications, which were put on hold during October’s volatility, there are some new items that have cropped up in the intermediate-range pipeline:
- Nisource, an Indiana utility, plans to privately sell $2 billion to $2.5 billion of senior notes in a range of maturities via Barclays and Credit Suisse First Boston. The company’s debt is rated Baa2 by Moody’s Investors Service and triple-B by Standard & Poor’s.
- Charter Communications, the cable company controlled by billionaire Paul Allen, may sell $1.2 billion in bonds this year or next to finance network upgrades. The issue, to be managed by Morgan Stanley Dean Witter and Goldman Sachs, will likely be similar to the 10-year convertibles the company issued in January, which now have an interest rate of about 10.5 percent.
- Frequent borrower Royal Ahold, a Netherlands-based supermarket concern, has been heard planning $1.57 billion of triple-B- plus bonds. No timeframe or other details have surfaced. The bonds will go to pay off a loan the firm is taking out for the purchase of a unit of Sara Lee.
- Seagate Technology, the computer disk drive manufacturer, is preparing to begin a road show as soon as this week for the sale of $400 million of bonds to replace a bridge loan. The company is being taken private by a group that includes management, Chase Capital Partners and Goldman, Sachs. The bridge loan is part of a $1.3 billion high-yield financing package put together to finance the buyout.
- Hercules Inc., a specialty-chemicals company, is likely to sell $375 million of notes to repay bank debt, possibly as early as this week. The company’s release pointed toward the issuance of seven-year unsecured debt. Donaldson, Lufkin & Jenrette and Credit Suisse First Boston are lead underwriters. The firm’s senior unsecured debt is rated Ba1 by Moody’s and double-B-plus by S&P.