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US Corp Bonds-J.P. Morgan, Bank One spreads narrow

NEW YORK, Jan 15 (Reuters) - Spreads on the corporate debt of Bank One Corp. and J.P. Morgan Chase narrowed Thursday morning, on hopes that their $58 billion merger, announced late on Wednesday, will result in lower costs and higher ratings.

"This is one of the better mergers. It makes strategic sense, the pricing is right, and it can be beneficial to both companies," said John Otis, a fixed income analyst covering banks at Deutsche Bank Securities in New York.

J.P. Morgan's acquisition of Bank One is set to be financed through equity rather than debt, which is good for bondholders because it means that no debt will be sold to finance the merger.

Meanwhile, the combined banks will have lower costs and a more diversified portfolio of businesses, which should help increase and stabilize cash flow, Otis said. The share prices of both companies rose on Thursday morning.

Spreads on J.P. Morgan's benchmark notes, its 5.75 percent notes of January 2013, narrowed 4 basis points to 68 basis points, according to MarketAxess.

Quoted spreads on Bank One's 5.25 percent notes of January 2013 narrowed about a basis point to a midmarket level of about 63 basis points.

A basis point is one hundredth of a percentage point.

Moody's said it may increase J.P. Morgan's rating after the merger announcement, while Standard & Poor's said it may increase Bank One's rating.

The combined company will likely be rated "Aa3" by Moody's Investors Service, which is equal to Bank One's current rating, and one notch above J.P. Morgan's current rating of "A1," Otis said.

Standard & Poor's said it will likely rate the combined entity "A-plus," which is equal to its long-term counterparty credit rating on J.P. Morgan, and one notch higher than its Bank One long-term counterparty rating.

Spreads were otherwise mixed, a corporate bond trader said.

Autos edged tighter after widening in previous sessions, and telecoms widened a bit.

In the primary market, German state development agency Kreditanstalt fuer Wiederaufbau is set to price a $3 billion five-year bond on Thursday. J.P. Morgan, Lehman Brothers and Morgan Stanley are managing the deal.

To see upcoming and recent corporate bond sales, click on [nNEUBD4].