Strong Canadian bank profit may spur primary; BMO out on deal rumors; Enbridge firms

By Cristal Cody

Prospect News, Aug. 30 - Strong Canadian bank earnings over the week are pushing speculation of new debt issuance in the week ahead, bond sources said on Thursday.

Royal Bank of Canada, Toronto-Dominion Bank and Canadian Imperial Bank of Commerce all reported better-than-expected third-quarter earnings on Thursday.

National Bank of Canada also reported stronger third-quarter profit late in the day.

Earlier in the week, Bank of Montreal as well as Bank of Nova Scotia, which also announced plans to acquire ING Bank of Canada, reported robust third-quarter earnings.

"Very strong earnings across the banks," a bond source said. "We still have one or two more. All of the major banks have beaten expectations."

Canadian bank paper traded mostly unchanged on the day, a trader said.

"I don't think these earnings are going to drive spreads a lot tighter - they're already pretty snug," a syndicate source said. "What this is doing, though, is getting people to think more about new issuance soon, and we'll have to watch how that shakes out next week. It's an early close tomorrow, so no one is going to try anything tomorrow."

In fact, speculation grew over the day that Bank of Montreal may be in the market soon with a deal, another bond source said.

"There are some rumors of issuance by BMO; that's why BMO's [notes] are out 2 to 5 [basis points]," the source said of secondary trading late on Thursday.

Otherwise, the market was "dead" on Thursday, one source said, noting a "very quiet week. A lot of people are away."

The Canadian bond markets will close early on Friday ahead of the long holiday weekend.

Australian telecommunications giant Telstra Corp. (A2/A/A) will be in Toronto on Friday for an informational session with investors following a roadshow in the U.S. market, a source confirmed on Thursday.

RBC Capital Markets Corp. and Scotia Capital Inc. are the hosts.

In the secondary market, National Bank of Canada's five-year deposit notes priced earlier in the month are 3 bps tighter, a trader said.

In other trading, Enbridge Inc.'s 30-year medium-term notes sold a week ago are 1 bp tighter.

Bonds overall were flat to weaker on the day with thin volume. The Markit CDX Series 18 North American investment-grade index eased 2 bps to a spread of 103 bps.

The Markit CDX Series 18 North American high-yield index fell to 97.91 from 98.20.

Canadian government bonds closed better across the curve. The 10-year note yield fell 3 bps to 1.77%. The 30-year bond yield closed at 2.34% from 2.37% the previous session.

In economic data, Canada's current account deficit expanded C$5.9 billion to C$16 billion in the second quarter, mainly on lower exports and higher imports of goods, Statistics Canada said.

National Bank of Canada firms

National Bank of Canada's 2.689% deposit notes due Aug. 21, 2017 are trading tighter at 112 bps bid in the secondary market, a trader said on Thursday.

The bank sold C$750 million of the five-year notes (Aa2/A/DBRS: AA) on Aug. 16 at a spread of 115 bps over the Government of Canada benchmark.

The financial services company is based in Montreal.

Enbridge edges tighter

Enbridge's 4.24% 30-year medium-term notes due Aug. 27, 2042 traded at 179 bps bid on Thursday, a trader said.

The company sold C$400 million of the notes (Baa1/A-/DBRS: A) at a spread of 180 bps over the Government of Canada benchmark on Aug. 22.

Enbridge is a Calgary, Alta.-based oil and gas distributor and transportation company.

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