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Just a few small deals hit the corporate bond market Thursday following a heavy slate of supply in the first three days of the week. Bonds in the secondary market sold off abruptly as hopes of a nicely wrapped European resolution package unraveled.
New product among investment-grade debt totaled $1.3 billion Thursday, following nearly $20 billion from Monday to Wednesday.
Syndicate managers are now debating whether the corporate bond pipeline is shut down for 2012 or if Friday and the next week will see more issuers try their luck.
One syndicate source said investors aren't engaged near the end of the year so issuers try to avoid it, but this week has been surprisingly active with investors continuing to demand paper and issuers wanting to get deals done before something potentially blows up in Europe.
"You take a risk that investors aren't engaged at this time of the year and weigh that against a stable backdrop in a market that has a propensity to be volatile," he said. "If you have a few of people being hopeful and everybody is on board, why not take the chance and issue?"
The three sizable issuers that did brave the market Thursday upsized their deals.
Florida Power & Light Co., a subsidiary of NextEra Energy Inc. (NEE), sold $600 million of 4.125% coupon, 30-year first-mortgage bonds at a price to yield of 4.139%, or a spread of 115 basis points over Treasurys. The deal was just $400 million when it was announced, and pricing improved from earlier guidance levels.
IDEX Corp. (IEX) sold $350 million of 4.2% coupon, 10-year notes at a spread to Treasurys of 225 basis points. The deal was originally for $300 million.
First Niagara Financial Group Inc. (FNFG) sold $350 million of subordinated notes bearing an interest rate of 7.25% and due in 10 years. The bonds were sold at par to yield 528 basis points over Treasurys. It was originally reported at $300 million.
The argument that issuance will shut down early received a major boost in the afternoon as spreads in the secondary market widened: Markit's CDX North America Investment-Grade Index, a benchmark gauge of the U.S. corporate-bond market, deteriorated 6.3 points on the day for a loss of 5.3%.
The culprit was a broad sentiment shift as rumors of a European Central Bank purchase program were promptly replaced by ECB President Mario Draghi denying the headlines.
"We've seen this six or seven times in the last few months," a corporate bond trader said. "An anonymous source gets us hoping, and then an official rains on the parade."
Bonds seeing heavy losses included 10-year paper issued by Goldman Sachs Group Inc. (GS), Transocean Inc. (RIG) and Bank of America Merrill Lynch (BAC). Their spread to Treasurys jumped 20, 28 and 36 basis points, respectively, according to MarketAxess.
Total trading volume surpassed $12.2 billion, according to MarketAxess at 5:20 p.m EST. The monthly average in November was less than $10 billion.
-By Patrick McGee, Dow Jones Newswires; 212-416-2382; firstname.lastname@example.org