By Nancy Leinfuss
NEW YORK, Nov 26 (Reuters) - U.S. corporate bonds weakened on Tuesday on the back of soaring Treasuries and as secondary trading activity wound down ahead of the Thanksgiving holiday, traders said.
"Treasuries have rallied sharply today and that's softened our market up a bit, but there really hasn't been much in the way of secondary flows," said one high grade trader.
U.S. Treasury yields boasted their biggest fall in three weeks on Tuesday after data on U.S. economic growth and consumer confidence contained enough soft spots to keep a sustained recovery in doubt.
Ten-year notes gained 25/32, as their yields dropped to 4.08 percent while 30-year bonds soared 1-9/32 as their yields fell to 4.947 percent .
The second reading of third-quarter revised GDP growth upward to an annual rate of 4.0 percent from an initial 3.1 percent, above analysts' forecasts of 3.8 percent. However, business investment was revised to a fall of 0.7 percent from the initial rise of 0.6 percent, a blow to those arguing that firms were finally regaining the confidence to invest.
Consumer confidence in November rebounded from a dismal October but was came in just below analysts' forecasts, according to a survey released by The Conference Board on Tuesday. Consumer confidence bounced from 79.6 in October to 84.1 this month, just below analysts' forecasts of 85.2 for November.
In the corporate bond primary market, two junk bond issuers provided the bulk of Tuesday's new issue activity. Levi Strauss & Co. sold $425 million of junk bonds while R.H. Donnelley Corp. issued $925 million of a two-part debt sale.
Both deals met with good demand triggering an increase in the deal sizes.
Meanwhile, only one $500 million offering from Meridian Funding sits on the investment grade calendar for this week as the pace continues to slow. On Monday, firms sold $1.2 billion in debt, following about $16 billion of investment grade supply last week.
LEVI, DONNELLEY SELL DEBT
R.H. Donnelley sold $925 million of junk bonds, $175 million more than originally expected, to help finance its $2.23 billion purchase of Sprint Corp.'s phone book business, people familiar with the sale said.
Donnelley increased the sale and cut yields to satisfy investor demand, the sources said. The acquisition will create the largest publicly traded phone book publisher, with more than 260 directories serving 18 million customers.
Donnelley sold $325 million of eight-year senior notes yielding 8.875 percent and $600 million of 10-year subordinated notes yielding 10.875 percent, both at the low end of expectations. Donnelley was expected to pay up to 9.25 percent and 11.25 percent on the respective notes. The notes yielded a respective 5.15 percentage points and 6.78 percentage points more than similar-maturity U.S. Treasuries.
Donnelley, based in Purchase, New York, has also lined up $1.55 billion in loan commitments, and is receiving $200 million from Goldman Sachs Group Inc.'s private equity arm for the acquisition. Sprint, one of Donnelley's largest clients, is based in Overland Park, Kansas.
Separately, Levi Strauss' sale, $125 million more than planned, was priced at 98.581 cents on the dollar to yield 12.5 percent, or 8.42 percentage points more than 10-year U.S. Treasuries. It boosted the sale to meet investor demand, people familiar with the sale said.
Levi, based in San Francisco, sold the notes to help pay down bank and other debt maturing in 2003, and position itself for more mass-market sales of blue jeans and other clothing.
The privately held company last month unveiled plans to sell lower-priced clothes, under the "Signature" brand, at Wal-Mart Stores Inc. to help reverse six years of slumping sales. "Signature" jeans would sell for less than $30.