Canada quiet on long holiday weekend; upcoming calendar light; Skylink, Connacher slide

By Cristal Cody

Prospect News, June 29 - Canadian bond markets ended Friday fairly quiet with most activity centered on quarter-end rebalancing before the early close and long holiday weekend.

There was "no primary issuance. Surprisingly, it was quite a busy day with a lot of quarter end and month rebalancing flows," a bond source said. "So the desk was kept pretty busy given it was a half-day close."

The Canadian bond markets will be closed on Monday for Canada Day, while the U.S. markets will close early on Tuesday and close on Wednesday for Independence Day.

Corporate bonds ended Friday much stronger. The Markit CDX Series 18 North American investment-grade index firmed 6 basis points to a spread of 112 bps.

"Deposit notes were definitely tightening," a Canadian bond source said.

Canadian deposit note spreads traded in about 5 bps on the day, the source said.

Bank and financial paper has been trading marginally better since Moody's Investors Service released its long-await bank ratings downgrades earlier in June.

"Finance names have traded to a little bit narrower spreads, but all in all there haven't been huge changes there," a trader said.

Canadian high-yield bonds were mixed in the secondary market.

Skylink Aviation Inc.'s 12¼% senior secured second-lien notes due March 15, 2016 plunged 17½ points on the week and are trading at less than half their issue price.

Connacher Oil & Gas Ltd.'s Canadian second-lien notes dropped 5 points over the week.

Cash Store Financial Services Inc.'s 11½% senior secured notes due 2017 traded up 1 bp on the week.

In economic news, Statistics Canada said the real gross domestic product rose 0.3% in April.

Government bonds traded lower, sending yields up about 7 bps across the shorter end of the curve, on the European Union's surprise announcement that rescue funds will be used to help Spanish and Italian banks.

Canada's 10-year bond note yield jumped to 1.74% from 1.68%. The 30-year bond yield closed 4 bps higher at 2.33%.

Skylink slides

Skylink Aviation's 12¼% notes due 2016 slid 17½ points on the week to go out at 47.5 bid in secondary trading on Friday, a source said.

Skylink Aviation sold C$110 million of the notes (/B//DBRS: B) on March 8, 2011 at par.

The Toronto-based global charter company specializes in emergency airlifts and evacuations and logistical support for governments and corporations.

Connacher drops

Connacher Oil & Gas' 8¾% senior notes due 2018 dropped 5 points on the week, going out in the early market close on Friday at 80 bid, a source said.

The company sold the notes in a C$350 million offering on May 20, 2011 at par.

Connacher has been underway in a strategic review since it rejected an unsolicited takeover offer in December, and the company announced on June 21 that the strategic review process is ongoing.

The integrated oil company is based in Calgary, Alta.

Cash Store better

In other trading, Cash Store's 11½% senior secured notes due 2017 rose 1 bp over the week to 94 bid on Friday, a source said.

The notes (B3/B/) priced on Jan. 24, 2012 in a C$132.5 million offering at 94.608.

Edmonton, Alta.-based Cash Store Financial provides broker and short-term lending services.

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