Three corporate issues, prompted by lower Treasury yields, surprised the market yesterday by pricing new issues in the face of a record Treasury refunding.
The Treasury kicked off a $38 billion quarterly refunding, the largest in its history, with the sale yesterday of $14 billion of three-year notes.
But a surprise ease in monetary policy by the Federal Reserve Board, which sent Treasury prices higher and interest rates lower, forced corporate issuers to respond by selling debt. Issuers normally shy away from issuing bonds during a refunding because most buyers are likely to focus their attention and capital elsewhere.
The Fed signaled it had eased its funds target by adding reserves to the system with overnight system repurchase agreements shortly before noon EDT. Analysts believe the Fed lowered its target by 25 basis points, to 5 1/2%.
Taking the market off guard, Bankers Trust Co. sold $100 million of noncallable subordinated notes as 9s at par in 2001, 96 basis points over comparable Treasuries.
The issue is rated A2 by Moody's Investors Service and AA-minus by Standard & Poor's Corp.
USX Corp. also hit the market with $150 million noncallable notes as 9.625s at par in 2003, 165 basis points above comparable Treasuries. First Boston Corp. was the senior manager on the offering. The issue is rated Baa3 by Moody's and triple-B minus by Standard & Poor's.
And American General Finance Corp., a unit of American General Corp., came to market with a $100 million sale of noncallable notes due Aug. 15, 1998.
Salomon Brothers Inc. won a competitive bid to manage the offering, and Donaldson, Lufkin & Jenrette Inc. was co-manager.
The 8 1/2% notes were priced at 99.68 to yield 8.56% or 76 basis points over comparable Treasuries.
They are expected to be rated A1 by Moody's and A-plus by Standard and Poor's Corp.
Diminishing returns from rising Treasury prices also prompted many investors to reach for better yields in the corporate sector, pushing prices higher.
High-yield bonds finished up between 1/4 to 3/8 point higher on the session, while investment-grade bonds were up 1/4 to 1/2 point in spots, traders said.
"It was a hectic trading day, and it was hard to get a firm offering for more than five minutes," one trader said. "The market was all over the place."
In ratings' news, Moody's said it placed the ratings of Westinghouse Electric Corp. and its finance subsidiary, Westinghouse Credit Corp., under review for possible downgrade.
About $4.7 billion of long-term debt is affected.
Traders said there were some spot offerings in the secondary markets with prices off between 1/4 and 1/2 point.
Moody's said it took action because of the possible need for additional capital contributions from Westinghouse to WCC, as required by a financial support agreement between the parent company and its finance subsidiary. An additional concern is the timing of a recovery for Westinghouse's core business activities.
Standard & Poor's Corp. said it affirmed the A-plus rating on $3.7 billion of senior debt for J.C. Penney Co. and its financial subsidiaries, J.C. Penney Financial Corp., J.C. Penney Global Finance, and J.C. Penney Overseas Finance.
But Standard & Poor's revised the company's outlook to negative from stable.
While the ratings continue to derive strength from the breadth and diversity of teh store base, this action reflects Standard & Poor's concern that a recent trend of relatively poor results may not soon be reversed and that financial measures will erode if the current weakness continues through the important holiday selling season.
Standard & Poor's also affirmed its ratings on American Brands Inc.'s senior debt, at A-minus, and its preferred stock at A-2 commercial paper ratings.
This action follows the company's announcement of a U.K. unit's $500 million cash bid to acquire Invergordon Distillers Group PLC.
About $2.3 billion securities are outstanding.