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CREDIT MARKETS: Investors Optimistic On Greek Deal; Companies Continue Borrowing

By DOW JONES NEWSWIRES Stocks rose and Treasurys faltered Thursday, amid investor optimism that Greece will complete a EUR200-billion debt restructuring. Nine high-grade companies had deals in the corporate bond market, building on what already has been the busiest week for new issues since late 2009. Meanwhile, the muni market largely slumped in price, taking cues from the Treasury market, as it was also pressured by hefty supply. While most major muni deals sold earlier this week, the market is still digesting the largest amount of weekly supply so far this year, at around $9 billion to $10 billion. Corporate Bonds Nine investment-grade companies tapped the corporate-bond market Thursday, helping to make this week the busiest for new issuance since late 2009, and there's still another session for companies to borrow. At least $6.63 billion of new bonds are expected to get sold, on top of $30.9 billion priced through Wednesday. That would top the previous busiest week of the year, in late January, when $28.8 billion were sold, and marks the most volume in a week since late November 2009, according to data provider Dealogic. The all-time high of $42.9 billion was set in mid-March 2009, according to Dealogic data going back to 1995. Companies big and small, high-grade and low, are coming out of blackout earnings periods and issuing debt to take advantage of record-low yields. Investor demand should remain high as new deals continue to trade well entering the secondary market. Nine of the top 10 most actively traded bonds are improving versus Treasurys, including a 0.16 percentage point tightening in the risk premium on Hewlett-Packard (HPQ) 10-year notes that were issued Wednesday, according to MarketAxess. Simon Property Group's (SPG) three-part, $1.5-billion offering was the largest deal Thursday. It sold 5.5-, 10-, and 30-year notes at spreads to Treasurys of 1.3 percentage points, 1.4 points, and 1.6 points, respectively. Mitsui Sumitomo Insurance sold $1.3 billion of 60-year subordinate bonds after a marketing period Wednesday. The privately placed notes were sold in the Rule 144A/Reg S market, which is only open to qualified investors outside the U.S., at a yield of 7%. Xerox Corp. (XRX) sold $1.1 billion including 18-month floating-rate notes offering 1.4 percentage points over the three month London interbank offered rate, or Libor. URS Corp. (URS), an engineering firm and federal government contractor, was selling five- and 10-year notes, each at 3 points over Treasurys. Companies issuing smaller deals include Genworth Financial Inc. (GNW), the New York unit of Consolidated Edison Inc. (ED), Edison International's (EIX) Southern California Edison, and the operating unit of natural gas company DCP Midstream Partners, LP (DPM). Mortgage Backed Securities Investors shifted back into some higher-coupon mortgage-backed securities just a day after signs of faster refinancing via the government's Home Affordable Refinance Program dented demand. While the initial response by borrowers to the HARP was stronger than some analysts expected, the overall impact over time may still be as anticipated, a trader said. Mortgage-backed securities also have underlying demand from the Federal Reserve and mortgage real-estate investment trusts that continue to raise capital for MBS investments. MBS prices jumped late on Wednesday as American Capital Agency (AGNC) raised $1.8 billion. Fannie Mae 5% MBS rose 3/32 to 107-30/32, helping them outpace Treasurys by nearly 5/32, according to Credit Suisse's Locus analytics. Fannie Mae's current coupon lagged Treasurys, however, with the gap between yields widening by 2 basis points to 87 basis points. The current coupon-10year Treasury yield spread has mostly traded between 70 and 95 basis points this year, after dropping from 1.34 in September. Municipal Bonds Muni-bond prices largely slumped Thursday, falling in sympathy with Treasurys and as supply still pressured the market. A benchmark scale from Thomson Reuters Municipal Market Data showed yields on triple-A munis were flat-to-up as much as three basis points. Bonds maturing around 10 to 20 years suffered the most. Bond yields and prices move inversely. MMD's senior market strategist Randy Smolik said weakness in the Treasury market Thursday didn't help munis, but some dealers, who have been accumulating debt in recent sales, also needed to sell inventory. Most major muni deals sold earlier this week, but the market was still digesting around $9 billion to $10 billion in new bond sales, the biggest weekly amount so far this year. Thursday, the only deals of size in the market were a $251 million bond offering from Broward County, Fla., water and sewer and a $235-million New York State highway and bridge deal, according to MMD. Treasurys U.S. Treasurys retreated Thursday as optimism about Greece's debt-swap operation grew through the course of the session. As of late Thursday, owners of about 80% of the eligible Greek debt had pledged to take part in the restructuring deal, according to one government official. A Greek TV station cited sources claiming more than 90% participation. Meanwhile, another official said involvement 24-hours ago was already above the 75% threshold for the deal to move forward. Official results will be announced at 0600 GMT on Friday. Worries about this record-size restructuring process that pervaded markets earlier this week turned into hopes that investors may finally be able to put this Greece saga behind them -- or at least on pause for a few months. As global stock markets rose, the demand for safe-haven assets declined. By late-afternoon trading, U.S. Treasury prices danced around session lows. Benchmark 10-year notes lost 12/32 in price to yield 2.017%. The 30-year bond fell 1 4/32 to yield 3.176%, while two-year notes shed a fraction in price to yield 0.310%. Debt prices move inversely to yields. -By Kelly Nolan, Dow Jones Newswires; 615-679-9299; kelly.nolan@dowjones.com --Patrick McGee, Al Yoon and Cynthia Lin contributed to this article.

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