Despite continued jitters in the European currency market, the U.S. corporate bond market yawned yesterday, with prices mostly unchanged to down 1/8 point and little activity in the new-issue market.
Market participants pointed to turmoil in European financial markets caused by the uncertainty over the upcoming French vote on the Maastricht treaty this Sunday. The treaty would bring European Economic Community nations a step closer to economic and political unity.
As a result, most corporate market players said they stayed on the sidelines and watched the European arena.
"It has not been very active" said one syndicate desk manager. Another quipped, "Nothing going on here. "
The head of one high-grade syndicate desk, however, predicted that the pace of new issuance will pick up when the European currencies stabilize. "As soon as things are calm in Europe, " the desk head said, "you'll see a bunch of issuers come back to the market. "
Fallout from the European market spurred a syndicate led by Merrill Lynch & Co. and J.P. Morgan Securities Inc. to announce in London yesterday that they would postpone a $1.5 billion Eurobond issue for the Kingdom of Spain until Tuesday, a source involved with the deal said.
He noted that the syndicate would wait for the results of the French vote on the treaty.
On Wednesday, syndicate officials assured the market that the deal would come, despite the currency problems. Syndicate officials said the deal, which is denominated in dollars, could benefit from flight-to-quality buying of U.S.-denominated assets.
But yesterday, Spain decided to wait out the currency crisis before selling the deal to investors because it feared problems with a planned swap of its dollar-based proceeds into the Spanish currency, sources said.
In addition, Spanish officials are not convinced that the market for U.S. Treasury securities will rally enough to make the deal a hot item among international investors. Dealers price U.S. corporate bonds based on an interest-rate spread above Treasury securities.
But the Spain deal was not the only international issue affected by the uncertain financial markets.
Dealers yesterday continued to complain about the $2 billion global issue completed on Tuesday by the Province of Ontario.
Although syndicate officials at Merrill Lynch say the deal is all sold, many rival firms say the deal is not trading well in the secondary market. A source at Merrill Lynch said spreads on the deal widened from 48 basis points above Treasuries Tuesday to 52 basis points yesterday.
A syndicate source at a rival Wall Street firm said, however, that the deal has fared even worse than underwriters care to admit, with spreads yesterday rising to as high as 56 basis above comparable governments.
In secondary market activity, one high-grade trader-said, "It is relatively quite. Most of the attention is on the governments and the currency markets. Prices are probably about unchanged. "
He added that the high-grade market will be focused on the currency markets through Monday, with an eye toward the French vote on Sunday.
Another high-grade trader said, "I would say that we have been very quiet, down a little bit more than the Treasuries - down an 1/8 in 10-years and maybe an 1/8" on the long end. He said high-grade corporates mostly followed the Treasuries.
"All the volatility in the market has made the corporate buyers sit on the sidelines." he observed. He added that if the French vote against the treaty or if the currency market remains unstable, then there may be a flight to quality" as investors seek U.S. corporate bonds in the next few weeks.
In the high-yield sector, traders said their market was firm, with prices mostly unchanged, except for a few names up or do a little.
Syndicate desks in this sector reported little activity.
The United Mexican States came to market with $250 million of 10-year bonds, due September 2002. The issue was rated Ba2 by Moody's Investors Service and BB-plus by Standard & Poor's Corp. Goldman, Sachs & Co. led a syndicate that included Merrill Lynch and J.P. Morgan as senior managers.
The offering was priced with a coupon of 8.50%, at a dollar price of 99 3/4, to yield 8.537%. The offering was 215 basis points over comparable Treasuries, according to an official involved in the deal. Salomon Brothers Inc. priced $75 million of noncallable notes for the U.S. Shoe Corp. The notes, due Oct. 1, 2002, were priced at par, to yield 8.625%. The notes are rated Baa3 by Moody's Investors Service and BBB-minus by Standard & Poor's Corp.
Illinois Power Co. filed with the Securities and Exchange Commission for a shelf offering of up to $350 million in debt securities. The securities include first mortgage bonds.
According to the filing, net proceeds from the offering will be used to buy or redeem at maturity outstanding securities of Illinois Power or for general corporate purposes. No underwriters were named in the filing. Charles Gasparino contributed to this column.