Ontario, RBC pick up deal pace; January sales forecasts rise; interest falls in financials

By Cristal Cody

Prospect News, Jan. 7 - The Province of Ontario and Royal Bank of Canada wrapped an active week in the primary market as more bond issuers are expected to price paper sooner rather than later, sources said Friday.

Although the primary calendar was expected to be light in January, many are reversing that opinion as more than C$2 billion was sold in the first week of the year.

"Frequent issuers are starting to get a little more interested," a source said. "January could be a little bit more busy than we anticipated. I'm also hearing that in the first quarter, there's going to be a number of high-yield deals."

Corporate investment-grade bonds overall narrowed 2 basis points on the short end of the curve and 7 bps on the long end on Friday, a source said.

"Activity was sluggish at the start of the week; it's picked up. The Royal Bank of Canada deal woke the market yesterday, so today there's a lot more active trading."

Canadian government bonds rose on Friday after the market was surprised with a lower-than-forecast jobs report in the United States.

The 10-year Canadian bond yield fell to 3.188% from 3.26%. The two-year note yield fell to 1.719% from 1.76%.

Canada added 22,000 jobs in December, more than the 20,000 forecast, Statistics Canada said.

U.S. Treasuries rallied after the Labor Department said employers added 103,000 jobs in December, much lower than forecasts of 175,000 jobs or more. The 10-year Treasury note yield fell to 3.32% from 3.4%. The two-year note dropped 8 bps to 0.59%.

Ontario prices C$750 million

The Province of Ontario sold C$750 million of 4% notes due June 2, 2021 at 99.702 to yield 4.035% on Friday, an informed source said.

The notes (Aa1/AA-/DBRS: AA) priced at a spread of 70.5 bps over the Government of Canada benchmark.

Scotia Capital Inc. was the lead manager.

RBC sells floating-rate notes

RBC was back in the market on Friday after selling C$1.3 billion of bonds the previous day.

RBC sold an upsized C$450 million of floating-rate senior deposit notes due Jan. 21, 2014 at par on Friday, a source said.

The notes (Aa1/AA-/DBRS: AA) were sold a spread of 33 bps over the three-month Canadian Dealer Offered Rate. The deal was upsized from C$300 million.

RBC Capital Markets Corp. was the manager.

On Thursday, RBC sold an upsized C$1.3 billion of 3.36% senior deposit notes due Jan. 11, 2016 (Aa1/AA/AA-) at a spread of 83 bps over the bond curve.

"The deal yesterday came at a bit of a concession and it was expected that they would be able to raise a little bit more than they did, but they came up with C$1.3 billion," a source said Friday. "That may be demonstrative of the market's interest in nonfinancials rather than financials. In Europe, there was a huge flood of financial product coming out to start the year."

The notes were flat in secondary trading on Friday, a source said.

The financial services company is based in Toronto.

Financials flat on week

Canadian bank and financial paper narrowed about 2 bps in trading over the week after widening in the last month, a source said.

"They're a little softish, but they've come back to be flat," a source said.

The financial sector performed poorly beginning in December.

"We saw some opportunistic buying coming in toward the end of 2010 and that's continued a little bit," the source said. "That's brought it in a couple basis points but it doesn't offset the widening that happened in 2010."

The insurance and bank sectors were the worst corporate bond performers of the year.

"The insurance sector was anywhere from 20 to 70 [bps wider] last year," the source said. "Bank product widened, depending on the curve."

Ten-year bank hybrid paper ended the year 75 bps wider, while bank subdebt was about 20 bps to 25 bps wider year over year, the source said.

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