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CREDIT MARKETS: Freddie Mac Sells $1 Billion Reference Notes
Dow Jones Newswires, 20 April 2010

The credit markets were more active Tuesday as Freddie Mac sold $1 billion of its reopened 3-year reference notes and Ford looked ready to price an asset-backed security. Meanwhile, financial bonds regained lost ground in the investment-grade market, and the high-yield market was firmer on a $1.6 billion issuance from CF Industries for an acquisition.

Investment-Grade Corporates
The tone was firm Tuesday as more than $8 billion in new issues were on the docket in the high-grade primary market, while trading maintained a brisk pace.

The International Bank for Reconstruction and Development, a unit of the World Bank, sold the largest offering: a $3.5 billion, three-year global note that offered a risk premium of 25 basis points over Treasurys.

The Province of British Columbia sold $1.5 billion of five-year global notes to yield 2.862% while German agribusiness development agency Rentenbank sold its $1 billion 5.75-year issue with a risk premium of 62.8 basis points over Treasurys.

Domestically, Ohio National Financial Services Inc. sold its $300 million offering of 10-year senior bonds while retailer Nordstrom Inc. (JWN) sold $500 million of 10-year bonds. And Thermo Fisher Scientific Inc. (TMO) priced its $750 million five- and 10-year securities.

Meanwhile, Goldman Sachs (GS) seemed to shrug off the aftereffects of the SEC probe into some of its trading practices, as the firm's bonds and credit default swaps rallied. The bank also reported its first quarter earnings had doubled from the year before, coming in at $3.46 billion and driven by strength in fixed income trading.

The cost to protect Goldman's senior bonds fell Tuesday, implying that investors aren't rushing to insure the bank's debt. The annual cost of protecting a notional $10 million of GS bonds against default for five years is now $118,000, versus $140,000 early Monday.

And Goldman's 6.15% bonds due 2018 narrowed by eight basis points to 152 basis points over Treasurys, according to MarketAxess.

Citigroup (C), Morgan Stanley (MS) and JPMorgan (JPM) debt also performed well, gaining back some of Monday's losses.

Still, financial regulatory changes remain in focus. President Obama is scheduled to speak in New York on Thursday, in part to discuss legislation to change fiscal regulations.

"Whatever the merits of the SEC civil suit against Goldman Sachs, its disclosure during the debate on financial reform appears timely for the Obama administration," according to analysts at Wall Street Access. They said that, in the long run, "reform will do more harm to Goldman Sachs and other financial institutions through lower profitability."

And the benchmark high-grade derivatives index, the CDX IG14, which measures the cost of insuring a basket of investment-grade corporate debt against defaults, was stronger by 2.8 basis points to 85.4 basis points, according to Markit. The index has been tracking stocks, and was lifted by positive earnings reports Tuesday.

Junk Bonds
High-yield was up slightly as CF Industries hit the market with a $1.6 billion bond issuance to fund its takeover of Terra Industries, completed last week.
CF's deal, led by Morgan Stanley, comprised two $800 million issuances: an 8-year senior note at 6.875%, and a 10-year senior note at 7.125%. The bonds are being used to refinance the loans taken out to buy Terra.

There were several deals in the pipeline, as Limited Brands and Phillips-Van Heusen announced offerings and Global Geophysical and Cleaver-Brooks looked ready to price Tuesday evening. Limited's deal is a $300 million 10-year senior note offering to refinance its existing notes due 2012, while Phillips-Van Heusen said it would sell $525 million in unsecured senior notes to pay for its acquisition of Tommy Hilfiger and repay existing debt with approaching maturities.

Global Geophysical is out with $200 million in senior notes due 2017 in a deal slated to price Wednesday. The bonds, led by Barclays Capital, are talked in the 11% to 11.25% area. Meanwhile, Cleaver-Brooks' J.P. Morgan-led deal for $200 million in senior secured notes due 2016 was slated to price Tuesday evening.

In the loan market, Atrium Companies, maker of residential vinyl and aluminum windows, is out with a $185M six-year term loan as part of its exit financing. Price talk on the deal is at 500 basis points over the London interbank offered rate, the benchmark rate at which banks lend to one another. It is said to have a Libor floor of 2% and an original issue discount of 98.5, according to a person familiar with the deal.

Asset-Backed Securities
Price guidance is out on Ford Motor Co.'s $1.09 billion auto loan-backed deal, according to a person familiar with the matter.

The deal, dubbed FORDO 10-A, has seven tranches, of which three are triple-A rated.
Price guidance on the largest triple-A-rated tranche, worth $382 million, is in the range of 20 to 25 basis points over a benchmark, the Eurodollar synthetic forward.

Joint lead managers on the deal, expected to price later this week, are J.P. Morgan Chase & Co., Morgan Stanley and Royal Bank of Scotland.

The bulk of recent issuance comprises auto sector deals, including bonds from Mercedes-Benz and BMW Auto Owner Trust.

Year-to-date issuance of asset-backed deals stands at about $20 billion and 48.7% is in the auto sector, according to data from Barclays Capital.

Last year, auto sector issuance outpaced other sectors. Auto loan-backed bonds worth $52.84 billion were sold, comprising 39.2% of total issuance, according to Barclays.
Agency Debt

Freddie Mac sold $1 billion of its reopened 3-year reference notes at 12.7 basis points over comparable Treasury yields, to yield 1.75%. The 1.625% coupon now has a total size of $6.6 billion. The bid to cover ratio, used to gauge demand, was 4.13 to 1. The issue will settle Wednesday. Currently, that bond is 1 basis point wider at 15/13, according to Tradeweb data.

Agency Mortgage-Backed Securities
Agency mortgages, after a brief spurt of selling, saw some buyers come in, tightening to 129 basis points over comparable Treasury yields. Earlier in the day, these securities were wider on selling and light buying. Investors prefer shorter-duration securities versus the longer bonds, said Chad Stephens of Ridgeworth.



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