By Daniel Grebler
NEW YORK, Oct 28 (Reuters) - Sales totaling $1.4 billion in 30-year bonds by retailers and consumer products makers boosted an otherwise quiet corporate bond market on Monday, traders said.
"This morning it opened much much better. Spreads came out pretty much on fire, tightening across all sectors," said one high grade corporate bond trader. "Then it just sort of petered out and quieted down."
In morning trade, spreads, the yield difference over comparable maturity Treasuries, tightened .02 percentage point to .05 percentage point - depending on the name, a trader said.
The high-grade trader said the market had "a pretty good tone right now," adding that the good reception for the new issues boded well for the overall market.
Consumer products maker Sara Lee Corp., retailer Target Stores Inc. and brewer Anheuser-Busch Cos surprised the market with issues of 30-year debt.
The moves dovetailed with reports in newspapers over the weekend and on Monday that Federal Reserve officials are leaning toward trimming short-term interest rates from 40-year lows before the end of the year -- and possibly as soon as next week -- to boost the economy.
"Some of these companies may have issued seven- or 10-year notes before, and thus have a funding gap. Others may view absolute rates as very attractive, making it worth locking in those rates to take advantage of the opportunity," said David Novosel, managing director and head of fixed-income research at Banc One Capital Markets Inc.
"There has definitely been a demand for high-quality paper. There has also been demand for 30-year paper, and there has been very little issuance this year," he said.
OUTLOOK MIXED
However, Novosel cautioned that prices in the consumer and retail sectors are on the high side. "They have had a great run, so investors should not expect it to continue this year and next."
Other analysts said corporate debt issuance is not likely to soar in the near future despite low interest rates and the stock market's recent resurgence. They cited concerns over the slow economic recovery, weak earnings and deteriorating credit quality -- all up against the specter of war in Iraq or more terror attacks.
"Issuance is really dependent not so much on corporate refinancing needs out there, as it is on investor sentiment and their willingness to take on risks," said Mitchell Stapley, chief fixed-income officer at Fifth Third Investment Advisors, in Grand Rapids, Michigan.
"There's a fair amount that issuers would like to do if the market accommodates it, but that's going to be closely correlated with equities," said Tim Doubek, portfolio manager at American Express Asset Management.
MOODY'S CUTS CHARTER
Moody's Investors Service on Monday cut billionaire Paul Allen's Charter Communications Inc.'s credit ratings, affecting about $22 billion of debt, on concern over the No. 4 U.S. cable TV operator's weakened operating performance.
The St. Louis-based company is one of the largest U.S. "junk" bond issuers, and its "distressed" bonds finished lower on the day.
Charter's 8.625 percent notes maturing in 2009 were bid Monday afternoon at 42.44 cents on the dollar, down slightly from 42.5 cents on Friday, according to TRACE, the NASD's bond pricing service. The yield edged up to 28.76 percent from 28.71 percent, TRACE said.
Moody's cut its senior unsecured debt rating for CharterCommunications Holdings LLC one notch to "B3," its sixth-highest "junk" grade out of 11, from "B2." It cut the parent's convertible senior debt two notches to "Caa2" from "B3," and downgraded Charter bank debt. It said more downgrades are possible.
SECONDARY AND NEW ISSUES
Household International Inc.'s bonds extended their gains from Friday, which resulted from the company announcing that it sold $900 million of stock and convertible securities and agreed in principle to sell more than $7 billion of loans and deposits.
Household Finance Corp.'s 5.75 percent notes maturing in 2007 on Monday yielded 9.54 percent, or 5.44 percentage points more than Treasuries, according to TRACE. The notes yielded 9.49 percent on Friday, and close to 11 percent on Thursday.
CreditSights Inc., an independent fixed-income research service, said corporate bond investors this week will face competing supply from two other sources -- as much as $45 billion from the Treasury Department, and California's record $11.9 billion municipal bond sale.
"Corporates are yet to break the $20 billion level for October issuance and could be somewhat crowded out of the primary market in the coming weeks, contributing to ongoing dismal secondary trading," it said. "If the supply-induced weakness in Treasury yields is exacerbated by resumed strength in the equity market, however, some near-term alleviation of spread pressure could be expected."
DEX MEDIA, DATA
The only junk bond sale expected this week comes from Dex Media East LLC and Finance Co., formed to help the Carlyle Group Inc. and Welsh, Carson, Anderson & Stowe buy Qwest Communications International Inc.'s phone book unit.
Dex Media plans on or about Wednesday to sell $450 million, up from $350 million, of seven-year senior notes yielding 9.75 percent to 10 percent, people familiar with the sale said.
It also plans to sell $525 million, down from $700 million, of 10-year senior subordinated notes yielding about 12 percent, the people said. Dex Media was also expected to obtain a $1.49 billion secured loan in connection with the sale.
Separately, Kaben Pipeline Operating Partnership plans to sell $200 million of 30-year bonds on behalf of Kaneb Pipe Line Partners LP, a petroleum pipeline company.
To see other recent and upcoming sales, please click here [nNEUBD4]. (Additional reporting by Jonathan Stempel and Nancy Leinfuss)