BP Share News (BP.)

By Chris Dieterich Of DOW JONES NEWSWIRES NEW YORK (Dow Jones)--Credit markets were generally firmer Tuesday, bolstered in part by news of improved manufacturing conditions. An index of New York State manufacturing increased to 19.57 from 19.11 in May and import prices fell 0.6% in May, half the 1.2% drop expected. Equities rose as investors turned away from low-risk Treasurys, and the Dow Jones Industrial Average closed the day up nearly 214 points. Several investment-grade and high-yield deals were finalized, while BP PLC (BP, BP.LN) bonds suffered a from a sell-off in the secondary market. "This year is going to be one of volatility," said Scott MacDonald at Aladdin Capital Holdings. "From day to day, people will feel like we're going from recession, to expansion to recession." Investment Grade Things were looking up in the investment-grade market Tuesday as three issues came to market representing $3.625 billion of new supply. A $2.5 billion, three-part deal for Teva Pharmaceutical Industries Ltd. (TEVA, TEVA.TV) launched at 40 basis points over three-month Libor for a $500 million tranche due in 2011; 80 basis points over Treasurys for a $1 billion tranche due 2012; and 95 basis points for another $1 billion due 2015. A $750 million, two-part offering for Lincoln National Corp. (LNC) launched at 225bps over for a $250 million tranche due 2015 and 280 basis points over on a $500 million tranche due 2040. A $375 million, 10-year deal for Pall Corp. (PLL) launched at 175 basis points over. All three were tighter than guidance. The buoyant mood was also reflected in Markit's benchmark credit index, the CDX North American Investment Grade, as it reacted positively to the U.S. data reports and continued to tighten all day. At market close, the CDX was trading at 118.4 bps, according to Markit, 4 basis points better than Monday's close. David Ballantine, principal at investment manager Payden & Rygel in Los Angeles, said it wouldn't surprise him to see a small bounce in corporate credit if there is more of a sustained rally in risk assets. "For the moment, the fixed-income market takes its cues from the equity market, and it's on a bit of a roll," he said. "Investors are itching for a place to put their money to work." On the downside, BP bonds took more hits in secondary trading, with its 1.55% bonds due 2011 trading 189bps wider this afternoon; its 5.25% bonds due 2013 trading 165bps wider and its 3.125% bonds due 2012 trading 145bps wider, according to MarketAxess. Credit default swaps protecting against non-payment of BP debt were considerably worse on the day and did not improve when the company said it had made significant progress paying claims because the announcement came after the London close. "I don't think anyone thinks the situation is any rosier down there. They just need new stimulus to get more upset about it," said Ballantine. High Yield Issuers continued to turn to the loan market to sell deals as high-yield bonds remain volatile and somewhat unwelcoming to new notes. Michael Foods Inc. is out with an $865 million term loan-revolver combo to help fund its sale to the private equity arm of Goldman Sachs by Thomas H. Lee. The deal, run by Bank of America-Merrill Lynch, Goldman and Barclays Capital, entails a $790 million six-year term loan B and a $75 million five-year revolver. The bank meeting is slated for Tuesday. Citgo Petroleum split its $1.5 billion bond deal after it went unsold on the market for three weeks. The deal is now two $500 million term loans at 700 and 600 basis points over the London interbank offered rate, which tracks the amount banks charge one another to borrow. The loans are run by BNP Paribas. RBS, which was running the original bond deal, may instead run a $500 million bond deal for Citgo. The secondary market was more active Tuesday, as the average bid price of high-yield higher-frequency names increased 73 basis points over the week, to 93.58, according to Standard & Poor's Leveraged Commentary and Data. The market is still struggling to rebound from its sudden drop in mid-May when European debt concerns gripped investors. It's down 545 basis points from its recent peak on April 27, LCD reported. NewPage Holding Corp.'s (NWP) 11.365% notes plunged 2.5 points after the company's chief executive officer, chairman and vice president of human resources all resigned. Robert Nardelli, chief executive of NewPage owner Cerberus Capital Management LP, has stepped into the leading role at NewPage. The new issue market remained silent, with four deals on the horizon with no set date to sell as the market stabilizes. In leveraged loans, Citgo Petroleum and Michael Foods lead a calendar of deals being shopped around the market. Citgo's deal comprises a $600 million term loan at 600 basis points over the London interbank offered rate, which tracks the amount banks charge one another to borrow, and a $650 million loan at 700 basis points over Libor. Asset-Backed Securities Impact Community Capital, a San Francisco-based for-profit agency, will sell $302 million of asset-backed securities backed by mortgages on affordable apartment complexes. The organization, which is sponsored by insurance companies including State Farm Insurance Cos. and MetLife Inc. (MET), is set up to promote socially responsible investments in underserved communities. The company buys and securitizes loans so that it can recycle funds to community groups that provide construction loans for the development of affordable housing, according to S&P. The ratings agency affirmed its stable rating on previous deals issued by Impact. In the latest offering, the $235 million, A-1 tranche, with 22% protection against loss, will be sold to investors. The rest will be held by issuers. Price guidance on this class, rated AAA, is not available yet. Mortgages Agency mortgage bonds saw heavy trading with some selling by originators of bonds. Risk premiums widened 2 basis points to 140 basis points over comparable Treasury yields. "There's still demand for these bonds as some investors are not waiting for prices to weaken anymore," said Paul Jacob, a director at Banc of Manhattan Capital. Meanwhile, in its latest housing report, J.P. Morgan said home prices will continue declining by another 2.2% to reach bottom at the end of the year. The report adds that recent mortgage applications indicate a drop in demand after the expiration of the homebuyer tax credit program, which ended April 30. However, the recent drop in mortgage rates to 4.78% may induce some buyers to return to the market. Total inventory of homes for sale rose to 4.04 million in April, or about eight to nine months of supply, to reach the highest level since last July. First-time homebuyers, looking to qualify for the tax credit, accounted for 49% of the sales in April and distressed sales fell to 33%. Supply of new homes also dropped to 5%. "The number of underwater homeowners remains elevated and investors are steadily rising," the report said. Treasurys Prices of U.S. Treasury securities dropped Tuesday as concerns over the euro-zone debt crisis eased a bit, leading investors to part with low-risk U.S. government debt. In afternoon trading, Treasurys were lower across the board as stocks were firm and the euro gained against the dollar. Investors were moving into riskier assets and parting with Treasurys after the encouraging news Tuesday out of the euro zone. Helping boost investor confidence, the European Commission said Germany, Spain, Portugal and nine other European Union governments are on track to meet their budget-deficit targets for 2010. Spain also had a successful, though pricey, debt auction, and Ireland raised EUR1.5B at auctions that brought strong bid-to-cover ratios, meaning bids were greater than the amounts on offer. In recent trade, the 10-year note was off 8/32 to yield 3.308%, the 30-year bond was off 9/32 to yield 4.221% and the two-year note was down 1/32 to 0.762%. The Dow Jones Industrial Average closed up 2.1%, the S&P 500 was up 2.4% and the Nasdaq Composite index edned up 2.8%. -By Chris Dieterich, Dow Jones Newswires; 212-416-2611; christopher.dieterich@dowjones.com (Katy Burne, Katherine Greene, Prabha Natarajan and Deborah Lynn Blumberg contributed to this article.) (END) Dow Jones Newswires June 15, 2010 16:54 ET (20:54 GMT)