The corporate bond market quieted down considerably after Wednesday's deluge of new issues, as only two deals totaling $225 million were sold yesterday.
Traders reported good trading activity in the follow-through to the $1 billion of new issues. But as the results of the dreary Treasury long-bond auction cut through the market, bonds stopped changing hands and bids fell away in sympathy with the government market.
J.P. Morgan & Co. sold a $150 million issue of eight-year subordinated notes into the stronger morning market. Priced at par, the notes had 8.5% coupons and came in at 58 basis points over the when-issued 10-year Treasury, a better benchmark than the eight-year due to relative liquidity.
The bonds are rated Aa2 by Moody's Investors Service and AA-plus by Standard & Poor's Corp. First Boston was the manager.
The other new issue yesterday was a $75 million sale of 30-year debentures by Corning Inc. Also sold in the morning, the deal fetched a yield of 8.89% for a 75 basis point spread over the when-issued Treasury long bond. The coupons were set at 8 7/8%.
The bonds were rated Al by Moody's and A-plus by Standard & Poor's. Lazard Freres was the lead manager on the sale.
The Treasury's sale of $30 billion in bellwether 30-year bonds put the brakes on the corporate market, traders said, because the "sloppy" results could not be ignored. But some market participants were undaunted by the setback.
"The poor auction very definitely put a damper on the euphoria in the market," said the head of a New York trading desk. "It's backed away off in here."
"It was an active batch of trading that we had this morning before the auction," another trader said yesterday.
Many primary dealers had auction bids filled at an equivalent of 8.19% -- or four basis points higher in yield than where the long bond was trading as the auction concluded at 1:00 p.m. EDT yesterday.
By the end of the day, investment-grade corporate bonds lost about 1/2 point.
The New York trading desk manager maintained that the market would "continue on" despite the auction, thanks to helpful economic data such as the M2 money supply number released yesterday afternoon.
Although the Fed already has eased, the trader said the $200 million decline in M2, to $3.3851 billion, indicates an ongoing constriction of money supply.
"The market's going to have to digest the bonds sold today. And this is indigestion, but I think we'll be able to see some more gains soon," he said.
