By Nancy Leinfuss
NEW YORK, Nov 20 (Reuters) - The high-grade corporate bond market ended on a weaker note on Thursday as heavy supply this week weighed on the market and secondary trading activity leveled off ahead of year-end, traders said.
"We traded kind of sideways today. We opened wider, then tightened up a bit but later turned wider again," said one investment grade trader.
Spreads, the extra yield corporate bonds pay over U.S. Treasuries, finished 0.02 to 0.3 percentage point wider across the broader market while bonds of automakers ended some 0.05 percentage point wider, traders said.
Market players attributed the weakness to the almost $15 billion of new investment grade supply sold this week, a lack of trading activity and renewed terrorism concerns.
"The market is suffering from a little bit of indigestion from all the new issues we saw this week. That, coupled with terrorist activity today pushed people to the sidelines," said another high grade trader.
U.S. Treasury prices were driven higher on Thursday after a series of bomb blasts in Istanbul earlier prompted a flight to safety away from equities. The attacks targeted the British Consulate and the HSBC bank and were seemingly timed to coincide with U.S. President George W. Bush's visit to its closest ally, the United Kingdom.
The 10-year benchmark note was up 22/32 in late trade to yield 4.162 percent.
Meanwhile, drugmaker Schering-Plough Corp. is expected to supply further this week, unleashing a $1.75 billion multi-tranche offering.
The New Jersey-based pharmaceutical company is planning to sell $1.75 billion of multi-tranche senior unsecured debt that will mature in 2008, 2013 and 2030. The proceeds are expected to be used for general corporate purposes and to pay down commercial paper.
"Now is a good time to (sell debt) and the credit market has been the market of interest lately," said Peter Loftus, senior portfolio manager at HSBC Bank USA. "Schering would be better received now than six or seven months ago but they have some issues working against them. They may have to widen (price guidance) a bit to get it over the finish line."
Unofficially, the 10-year tranche has been talked at 100 basis points over Treasuries, which would put the paper just outside of the comparable maturity of Wyeth paper, which was quoted Thursday morning at 95 basis points over Treasuries bid, 90 basis points offered.
The new issue will contain step-up language, which helps entice investors to offerings in danger of a downgrade, said investors looking at the deal. If the ratings assigned to the transaction change by any of the agencies, the coupon will step up 25 basis points per step.
Moody's Investors Service, on Thursday, affirmed Schering-Plough's credit rating of 'A3,' while Standard & Poor's has their 'A+' rating on CreditWatch with negative implications. Separately, on Thursday morning, Fitch Ratings cut Schering-Plough's senior unsecured rating two notches to 'A-' from 'A+.'
To see upcoming and recent corporate bond sales, click on [nNEUBD4]. (Additional reporting by Richard Bravo)