Canadian bonds quiet after flurry of supply; Spreads move wider; AltaGas deal trades well

By Rebecca Melvin

New York, Oct. 13 - The Canadian bond market was flattish to a little softer on Thursday as markets in general sat back and bond players digested a windfall of new issuance that resulted after the positive tone of recent days.

There were expectations of further supply following the pricing of AltaGas Ltd. and Bank of Montreal corporate deals and provincial debt on Wednesday. But there was no further new issuance on Thursday for corporates, provincial, municipal or government debt.

"The window opens and closes quickly," a debt strategist said, anticipating that the window will open again before too long. The expectation is that there is going to be more upcoming issuance from Canadian banks, which see the end of their fiscal year at the end of October, and among other would-be issuers which were stymied by market turbulence during the last few months.

AltaGas Ltd. traded "really well" in the secondary on Thursday and was 'in" by about 5 or 6 basis points a day after the Calgary, Alta.-based energy company sold C$200 million of 4.55% senior medium-term notes, a corporate debt strategist said.

Bank of Montreal was flattish to a little softer amid expectations of further supply, the specialist said.

The Montreal bank launched a C$500 million offering of deposit notes that grew to C$900 million via an add-on Wednesday.

The overall market sat back Thursday after showing decent tone in the beginning of the week, and that has been the general pattern for market moves for the past several months, a market source said.

There was a little bit of a return of the risk off sentiment and equities took a tumble after what had been a good run, a provincial bond strategist said.

"Maybe there was a little profit-taking. No one was taking a strong conviction either way," the corporate bond specialist said Thursday.

Government bonds ended higher across the curve with a stronger 30-year auction in the U.S. yields helping drag lower Canadian yields. Canada's 10-year note yield fell 6 bps to 2.294%. The 30-year bond yield closed down 5 bps at 2.895% from 2.94%.

Provincials 'a touch wider'

The long Province of Ontario bonds were 91.5 bps over the Government of Canada benchmark at the end of Thursday, from 90.5 bps bid, 91 bps offered early in the day. The 10-year Ontario's were 89.5 bps at the end of Thursday, compared to 88.5 bps at the end of Wednesday.

"The secondary market has generally seen weakening by about a beep or so in the provis in the last day or so," a provincial strategist said.

"The credit market tone was not as robust compared to yesterday," he said.

"It seemed market players were digesting all that supply and thinking about what's next, and stock markets eased off after what had been on a good run," he said.

Market players are definitely expecting more supply, probably from several Canadian banks, which are going to want to finish financing before the end of October, which marks the end of the banks' fiscal year and the beginning of their quiet period.

"There's the potential of two or three Canadian banks coming in to get more financing under their belt before their quiet period," the strategist said.

In addition, there are a number of other potential issues that may come to market after having been sidelined for the last few months by market turbulence. Among those issuers might be some utilities, as well as provincials and municipal issuers.

"There are a variety of names in the pipeline and a couple of issuers that have had recent roadshows are certainly candidates," the strategist said.

The Canadian corporate market wasn't open or welcoming, with the European sovereign debt uncertainty and when U.S. debt negotiations were going on during the summer. Now with Slovakia becoming the last country to approve the European Rescue Fund, and with a plan to recapitalize European banks, there is more clarity.

"There has not been a lot of issuance for a couple of months, and there's probably a little bit of pent up demand," he said.

Nevertheless, it's still a wait and see environment. "Absolute yields are still pretty attractive. Going back a month ago, the all-in yields on benchmarks are still attractive," he said.

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