Favorable inflation news lifted corporate bond prices up in line with Treasuries yesterday as new high-yield and junk issues together topped $2.8 billion.
The Labor Department's October producer price index, released yesterday, fell a surprising 0.2%, defying economists expectations for a 0.2% rise. Excluding its food and energy components, the PPI declined 0.5%
The news helped the Treasury market's benchmark 30-year bond closed up 5/8 point, and, for the most part, corporate spreads held up. high-grade sources said. The government's long bond had been up more than a point and a half earlier in the day.
"I would say corporates maintained their spreads pretty well," one high-grade trader said. While some weaker credits may have widened a bit. the top quality names remained steady, he said.
Among strong performers was RJR Nabisco paper, which tightened 30 to 35 basis points in the 10-year area by mid-afternoon on news that the company planned to raise wholesale cigarette prices.
While a number of yesterday's new deals had been expected, some other issuers apparently decided to take advantage of the rally. Another inflation report, the consumer price index. is due out today.
Citing the recent backup in rates, the trader said issuers may be concerned that yesterday's strength was only temporary.
"Now they think, let's not get greedy," he said.
Asked how the deals were selling, a second trader said they appeared to be doing all right for the most part.
"I didn't hear about anything being really bad," the second trader said.
Joe Mullally, a vice president and senior fixed-income strategist at CS First Boston, said a weaker than expected CPI report today could draw more issuers to market because participants may worry that it's a "last hurrah" before interest rates begin to climb.
But Mullally said that many corporate bond investors, having enjoyed "a very good year," are adopting a defensive stance. With just weeks to go, accounts are just waiting out the year, neither adding to or diminishing positions, Mullally said.
New Issues
CNA Financial Corp. issued a two-part offering totaling $500 million. The first tranche consisted of $250 million of 6.25% notes due 2003. The noncallable notes were priced at 99.815 to yield 6.275%, or 70 basis points more than comparable Treasuries.
The second piece consisted of $250 million of 7.25% debentures due 2023. The noncallable debentures were priced at 99.683 to yield 7.276%, or 94 basis points more than Moody's Investors Servicerates the offering A1, while Standard & Poor's Corp. rates it A-plus.
U S West Communications Inc. issued a two-part offering totaling $400 million. The first tranche consisted of $150 million of 6.125% notes due 2005. The noncallable notes were priced at 99.873 to yield 6.14% or 55 basis points more than comparable Treasuries. The second piece consisted of $250 million of 7.125% debentures due 2043. Noncallable for 20 years, the debentures were priced at 99.269 to yield 7.179% or 85 basis points more than the old 30-year Treasury bond. Moody's rates the offering Aa3. while Standard & Poor's rates it AA-minus. Merrill Lynch & Co. was lead manager.
Western Mining Corp. issued a two-part offering totaling $400 million. The first tranche consisted of $150 million of 7.25% debentures due 2013. The noncallable debentures were priced at 99.68 to yield 7.281% or 93 basis points more than comparable Treasuries. The second piece consisted of $250 million of 6.5% notes due 2003. The noncallable notes were priced at 99.781 to yield 6.53% or 90 basis points more than comparable Treasuries. Moody's rates the offering A2, while Standard & Poor's rates it A.
Zeneca Wilmington Inc. sold $300 million of 7% guaranteed debentures due 2023. The noncallable debentures were priced at 99.095 to yield 7.073% or 74 basis points more than comparable Treasuries. Moody's rates the offering Al, while Standard & Poor's rates it A-plus. Goldman Sachs was lead manager on the offering.
Methanex Corp. issued $275 million of 8.875% senior secured second priority notes due 2001. Noncallable for five years. the notes were priced at 99.298 to yield 9%. Moody's rates the offering Ba3, while Standard & Poor's rates it BB. CS First Boston was lead manager.
Lehman Brothers Inc. came to market with $200 million of 5.75% senior subordinated notes due Nov. 15, 1998. The noncallable notes were priced at 99.798 to yield 5.797% or 85 basis points more than comparable Treasuries. Moody's rates the offering A3, while Standard & Poor's rates it A. Lehman Brothers was lead manager.
Casino America Inc. issued $105 million of 11.50% first mortgage notes due 2001 at par. Noncallable for four years, the notes were rated B1 by Moody's and B by Standard & Poor's. Salomon Brothers Inc. managed the offering.
Texas Bottling Group sold $125 million of 9% senior subordinated notes due 2003 at par. The notes are callable after five years at 104.5, moving to par in 2001. Citicorp Securities was lead manager. Moody's rates the offering B3, while Standard & Poor's rates it B.
Coca Cola Bottling Southwest sold $140 million of 9% senior subordinated notes due 2003 at par. The notes are callable at 104.5 after five years, moving to par in 2001. Citicorp was lead manager on the offering. Moody's rates the offering B2, while Standard & Poor's rates it B.
Smith Barney Shearson Holdings reportedly issued $150 million of 5.625% notes due 1998. The noncallable notes were priced at 99.797 to yield 5.672% or 70 basis points more than comparable Treasuries. Smith Barney Shearson was lead manager.
Navistar Financial Corp. issued $110 million of 8 7/8% senior subordinated notes due 1998 at par. The noncallable notes were rated B2 by Moody's and B-plus by Standard & Poor's. J.P. Morgan Securities Inc. was lead manager.
Student Loan Marketing Association sold $70 million of 4.34% medium-term notes due 1996. The noncallable notes were priced at 99.876 to yield 4.39% or five basis points more than comparable Treasuries. Goldman Sachs was sole manager.
