Canada bond offerings dependent on tone; corporate spreads widen; government bonds rally

By Cristal Cody

Prospect News, Oct. 3 - Canadian corporate bond spreads widened on Monday, while government bonds trailed the U.S. Treasury rally as investors fled out of stocks and into safer debt on fears Greece is close to a debt default.

"Very bad day to be pricing a deal because the market is very, very weak in general," a source said Monday. "Everything's weaker."

Any deals in Canada this week will be dependent on market tone, sources said.

One potential offering is expected from the Municipal Finance Authority of British Columbia, which is forecast to sell C$100 million to C$150 million in a reopening of its 4.15% notes due June 1, 2021, a source said.

Secondary spreads widened and confidence in corporate bonds lessened on Monday in the uncertainty of the European debt markets. The Markit CDX Series 17 North American high-grade index eased 6 basis points to a spread of 150 bps.

Investment-grade bank and brokerage credit default swaps also rose sharply on Monday, indicating a slide in investor confidence in the financial sector, a trader said.

Morgan Stanley's paper widened 50 bps to 65 bps in the secondary market on Monday, traders said.

Canadian government bonds ended stronger with the 10-year note yield down 7 bps to 2.06%. The 30-year bond yield fell to 2.69% from 2.76%.

"The Canada bond market rallied on the day through the stock market weakness," a source said. "For us, it was really more of a shift down in yields and not quite as abrupt at the long end."

Government auction eyed

Coming up on Wednesday, the Bank of Canada will auction 10-year notes.

"So far this year, auctions in Canada have been pretty well subscribed," a source said. "Ten-years are looking relatively cheap on the curve, so that'll help as well."

The day's only domestic data in Canada on Monday showed Canadian manufacturing activity rose for a third straight month in September.

The Royal Bank of Canada's RBC Canadian Manufacturing Purchasing Managers' Index rose to 55.05 in September from 54.9 in August.

"That was firmer than expected, but it really had little influence in terms of the way the market moved today," a bond source said. "The weakness in oil prices is beginning to weigh somewhat in Canada in terms of economic outlook and it's also helped keep the Canadian dollar weak."

The key data for the week is Canada's employment report on Friday, where economists forecast a job increase of 30,000 for September.

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