Positive tone holds, primary cools for Canada markets; bonds flat to weaker in trading

By Cristal Cody

Prospect News, Sept. 22 - A positive tone still held for the corporate bond markets on Thursday, though bonds were seen weaker. Cited for the mood were global economic fears that grew on weaker Chinese economic data and a day after the Federal Reserve released a somber outlook for the U.S. economy.

"It's still a positive tone despite the equity markets," a trader said. "There's two-way flow. Things are maybe on the week down a little bit."

September had been expected to be busy with primary activity, but market conditions have pushed issuers to the sidelines mostly. Hydro One Inc. (Aa3/A+/DBRS: A) found good demand on Wednesday when it priced C$300 million of long bonds in the high-grade market.

Canada's high-yield market has not seen a new deal yet in September. A source said Thursday issuance is likely to stay flat until October.

"We think there will be a couple [deals] in October," the source said.

Secondary trading was a "little bit better" on Thursday with bonds flat to slightly weaker even with weaker equities, a trader said.

Some actively traded bonds on the day included Kruger Products LP's notes and Garda World Security Corp.'s bonds.

Precision Drilling Corp.'s bonds were weaker on the day, the trader said.

Government bonds again rallied on Thursday as investors moved into safer-haven debt.

"It's been a pretty dramatic move again," a bond source said. "We've had a dramatic rally across the curve in Canada. It's a bit more of a parallel shift here whereas it's more dramatic at the Treasury long end. It's down 40 basis points in two days."

The 10-year Treasury note yield dropped to an historic low of 1.72% on Thursday from 1.85% the previous day, itself a record low on Wednesday. The 30-year Treasury bond yield fell to 2.79% from 2.99%.

"The market was expecting the Fed to buy more in the 10-year sector, and the Fed indicated it would buy more of long bonds," the source said. "That caught some people off guard, so they had to cover and move into the long end. That's partly why the rally has been so strong in long bonds. Canada is just following along."

Canada's two-year note yield dropped to 0.83% from 0.90%. The 10-year note yield fell 6 bps to 2.02%, and the 30-year bond yield was down 2 bps to 2.68%.

Kruger down

In other trading, Kruger Products' 8% senior notes due Aug. 9, 2018 (/B/DBRS: BB) dropped in trading to 97 bid, 99 offered, a trader said Thursday.

The company sold C$175 million of 8% senior notes due Aug. 9, 2018 (/B/DBRS: BB) at par on July 28.

Kruger is Canada's leading tissue products producer, with brands that include Cashmere, Purex and Scotties. The company is a subsidiary of Montreal-based pulp and paper producer Kruger Inc.

Garda active

Garda Securities' bonds were active in the secondary market on Thursday, a trader said.

The company's 9¾% senior notes due March 15, 2017 (B2/B/) traded around 102 bid late afternoon.

The issue was reopened on May 31 in a C$50 million add-on priced at 106.5. The company originally priced a C$75 million issue at 98.148 on March 8, 2010.

The security services provider is based in Montreal.

Precision Drilling lower

Precision Drilling's 6½% senior notes due 2019 (Ba2/BB+/) were seen trading Thursday "down a point and a quarter to 98.25," a trader said.

The notes were sold at par on March 9.

Precision is a Calgary, Alta.-based equipment and services provider for the oil and gas industry.

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