While scheduled 10-year corporate offerings abound, the seven-year slot remains largely barren, said Michael Bassett, a vice president at Stone & McCarthy Research.
"Since Sept. 13, only 4% of new corporates came in the seven-year [term]. There's a big hole there," Mr. Bassett said.
"Part of it is that you just had the seven-year treasury auction," he said. "You tend not to have issuers trying to compete with a big Treasury auction," Mr. Bassett added.
Excluding junk bonds, no seven-year deals have been offered so far this month, said Richard S. Barnett, an industrial analyst at Mabon Securities Corp. Asked why, he replied, "You got me."
One trader said the seven-year was the cheapest part of the curve,
"Corporations don't want to issue into the cheapest part of the curve -- they want to issue into the richest."
When they issue, corporations like to go out as long on the curve as they can without picking up too much yield, Mr. Bassett explained. Going out seven years, corporations pick up a good deal of yield relative to the maturity.
"If you're going to go out [that long] you might as well go out to the 10-year," he said. But Mr. Bassett cautioned that some experts at his firm see that scenario correcting itself and he warned against attributing the phenomenon to one factor.
"As with anything else in this market, there is always more than one reason," he said.
Among those 10-year issuers either expected this week or soon after are the Tennessee Valley Authority; Midland Funding, a unit CMS Enery Corp.; Societe Nationale Elf Aquitaine; Rogers Cantel Mobile Inc.; and Petro-Canada.
"The feeling is that there is more out there for that slot than this. I don't think you are going to get a return to the long bond until you get some kind of consensus that we are at or past the trough in rates," Mr. Bassett said.
The TVA's $500 million offering is expected to be bid for today.
"That should be really interesting," Mr. Bassett said, explaining the deal has an unusual structure. The 10-year offering is callable after three years at a price 106 premium. For the past two years, 10-year corporates have all had bullet maturities, he said.
Midland Funding Corp., Mr. Bassett said, is scheduled to offer $300 million of 10.33% senior secured lease obligation bonds due 2002, a company source confirmed. The offering -- part of a larger shelf registration thought to be $632.7 million -- is expected to be done this week through Morgan Stanley & Co.; Goldman, Sachs & Co.; Merrill Lynch & Co.; and Donaldson, Lufkin & Jenrette Securities Corp.
Rumors say Elf Acquitaine's $250 million Yankee bond deal will be offered this week. Goldman will be the lead manager.
Rogers Cantel Mobile Inc. plans to begin the road show for its $250 million note issue next week. Merrill Lynch & Co. will manage the offering.
Petro-Canada is expected to offer its two-part deal soon, Mr. Bassett said. It consists of $300 million of 10-year paper and $300 million of 30-year paper, he said.
ITT Financial yesterday issued $250 million of 7.375% notes due 1995. The noncallable notes were priced at 99.675 to yield 7.47% or 100 basis points over the blended 3 and 5-year Treasuries. Lehman Brothers managed the offering. Moody's rates the notes A2, while Standard & Poor's rates them A.
Indianapolis Power & Light issued $58.8 million of non-callable 8% first mortgage bonds priced at 99.583 to yield 8.048% or 62 basis points over 10-year Treasuries. The bonds mature in 2006. Moody's rates them Aa2, while Standard & Poor's rates it AA.
The Federal National Mortgage Association said it plans to redeem two debentures issues totaling $300 million next month.
The agency said that on Nov. 14 it will redeem all $200 million of its 8.44% four-year debentures due Nov. 14, 1994. On Nov. 15, Fannie Mae plans to redeem all $100 million of its 8.20% three-year debentures due Nov. 15, 1993.
On both issues, the redemption price will be 100% of the principal amount redeemed.
Overall, the high-grade corporate bond markets was off slightly in the morning to end largely unchanged. The high-yield market was firm and up a touch with mixed trading, traders said.
In the private placement market, Iowa-Illinois Investment company sold its entire $60 million three and four-year notes offering to Prudential Power Funding, a unit of the Prudential.
Iowa-Illinois plans to use proceeds to reduce bank debt and for future investments. Located in Davenport, Iowa, the company is a wholly owned subsidiary of Iowa-Illinois Gas and Electric Company.
Weiss Research Inc. announced 21 insurance company upgrades and 18 downgrades in its Insurance Safety Directory, released last week.
Management of troubled mortgages, increased liquidity, and reduced junk bonds account for some of the companies' higher ratings. Among those making significant gains were Travelers Insurance Life Department and Tandem Insurance Group, upgraded to C-minus after previously being rated D-plus or weaker, Weiss said.
Other big insures with improved ratings are Principal Mutual Life and Variable Annuity Life, upgraded to B from a previous B-minus; Connecticut Mutual Life which went to a C-plus from a C; and Jackson National Life which edged to a C from a C-minus.
Among those downgraded, Mutual Life Insurance of New York, which dropped to a D-minus from a D-plus. Commonwealth Life dropped to a B from B-plus; Provident National to a C from C-plus; and Northwestern National Life to a D-plus from a C-minus.
