John Deere upsizes, prices notes; RBC sells floaters; provincial supply to be 'heavy'

By Cristal Cody

Prospect News, Jan. 10 - In new corporate bond supply on Monday, John Deere Credit Inc. sold an upsized C$200 million of 2.3% two-year medium-term notes in the Canadian market.

In the United States, the Royal Bank of Canada sold $2.25 billion of six-year extendible floating-rate notes (Aa1/AA-), according to an FWP filing with the Securities and Exchange Commission.

In other Canadian market activity, new provincial bond deals are expected "to ramp up again now that the holiday season is over," a source said.

On Friday, the Province of Ontario sold C$750 million of 4% notes due June 2, 2021 at a spread of 70.5 basis points over the Government of Canada benchmark.

"From a longer-term perspective, yields are still quite favorable, so I would expect heavy issuance in this month," the source said.

Canadian government bonds closed up in choppy trading on Monday.

"The markets were focused on Europe," said Douglas Porter, deputy chief economist at BMO Capital Markets Corp. "We ended up having a relatively strong rally in the Treasuries market, which partly spilled over into Canada."

The Canadian 10-year bond yield fell to 3.173% from 3.19%. The two-year note yield fell to 1.714% from 1.72%.

Portugal denied rumors it is being forced to take aid.

The euro sovereign concerns helped temper the "latest survey from the Bank of Canada, which showed businesses are relatively optimistic on the outlook here and showed that bank lending conditions are getting back to normal quickly," Porter said.

U.S. Treasuries also gained as the cost to insure Portuguese debt against default rose again on Monday.

The yield on the 10-year Treasury note fell to 3.28% from 3.32% on Friday. The two-year note fell 2 bps to 0.57%.

"This is one marker to watch in terms of the euro zone's problems. The 7% yield level on 10-year bonds appears to be the key issue," a source said. "In the case of Greece and Ireland, both required bailouts once this yield level was breeched. And, Portugal broke above this level last week."

John Deere Credit prices

John Deere Credit sold an upsized C$200 million of 2.3% medium-term notes due Jan. 14, 2013 at 99.926 to yield 2.338% on Monday, an informed source said.

The sale was upsized from C$150 million.

The notes (A2/A/DBRS: A) priced in line with guidance at a spread of 58 bps over the Canadian curve.

TD Securities Inc. and RBC Capital Markets Corp. were the joint lead managers.

The Burlington, Ont.-based company provides equipment financing and leasing as part of the agricultural manufacturer Deere & Co.

RBC prices $2.25 billion

The Royal Bank of Canada sold $2.25 billion of six-year extendible floating-rate notes (Aa1/AA-), according to the SEC filing.

The notes priced at 99.9467 and have a coupon of three-month Libor flat for the first year.

The initial maturity date is Feb. 6, 2012, but holders can extend the maturity of the notes in 366-day increments up to the final maturity of Feb. 3, 2017.

The coupon steps up 5 bps after the first year and each year until February 2015, when it remains flat until final maturity.

The notes are callable at par plus accrued and unpaid interest starting with the February 2016 interest payment date.

RBC Capital Markets Corp. was the bookrunner.

The financial services company is based in Montreal and Toronto.

Andrea Heisinger contributed to this review

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