The notes may be sold in benchmark size to price as soon as today, said a person familiar with the offering, who declined to be identified because terms aren’t set.

U.S. bank bonds are outperforming overall corporate debt for a second month even as states probe the industry’s foreclosure practices. Morgan Stanley last week reported a third-quarter per-share loss, posting its worst trading quarter since 2008. Still, investors favor the premium over Treasuries on bank debt versus industrials, said Mirko Mikelic, senior portfolio manager at Fifth Third Asset Management in Grand Rapids, Michigan.

“Just because they’re in a business that’s maybe slowing down in the near-term doesn’t mean they’re not going to get good pricing,” said Mikelic, who helps oversee $14 billion of fixed- income assets, including Morgan Stanley debt. “We still like financials relative to industrials, because industrial spreads have just come in so much.”

The 225 basis-point spread on U.S. bank debt compares with a 155 basis-point yield over Treasuries on industrial bonds, the lowest since May 3, according to Bank of America Merrill Lynch index data.

‘Lot of Hair’

U.S. bank debt has returned 0.52 percent to investors this month, exceeding the 0.31 percent gain on all corporate debt, according to the index data. That follows a 1.18 percent gain in September, which also beat the 0.59 percent return on overall corporate bonds.

“It’s tough to find value anywhere in corporate land because everything’s just run in so tightly, spread-wise,” Mikelic said.

Morgan Stanley trails Bank of America Corp., JPMorgan Chase & Co., Citigroup Inc., Wells Fargo & Co. and Goldman Sachs Group Inc. in size.

Goldman Sachs reported earnings that beat analysts’ estimates as lower costs and higher investment-banking revenue cushioned a decline in trading. Bank of America and JPMorgan both reported at least a 15 percent drop in trading revenue from the third quarter of 2009.