Quebec reopens 10-years, expected to sell C$500 million more; provincial spreads widen

By Cristal Cody

Prospect News, Jan. 13 - The Province of Quebec sold C$500 million in a reopening of its 4.5% notes due Dec. 1, 2020 on Thursday and another C$500 million is expected to be sold soon, an informed source said.

Quebec (Aa2/A+/DBRS: A) sold the 4.5% notes at 103.199 to yield 4.102% early Thursday, one source said. The notes priced at a spread of 81.5 basis points over the Government of Canada benchmark.

National Bank Financial Inc. was the lead manager.

The issue now has a total of C$5 billion outstanding and was previously reopened on Nov. 19, 2010.

"The issuer said they would likely reopen these bonds another time to bring the total outstanding to C$5.5 billion and move on to do new 21s," a source said.

Quebec's new notes had tightened in secondary trading by a half a point but ended the day back at the sale price, a source said.

The sale "went relatively well given the lack of recent supply in the market on a day that spreads softened up a little bit," the source said. "We've seen sizable selling in the 10-year sector and in Quebec's 18s switching into CMB [Canada Mortgage Bonds] 18s. Five's and longs are unchanged on the day."

Ontario notes widen

In other provincial secondary activity, the Province of Ontario's 4% notes due June 2, 2021 that priced on Jan. 7 widened another basis point on the day, a source said.

The notes were sold at a spread of 70.5 bps over the Government of Canada benchmark.

"They're out to 74 bid," the source said.

Interest rate view unchanged

Canadian government bonds were mixed Thursday ahead of a decision next week whether the Bank of Canada will raise interest rates. The 10-year note yield was at 3.25%. The two-year note yield rose to 1.773% from 1.74%.

"Some of the surveys that have come out on the major dealers in Canada show some are looking for a rate increase at the next meeting," a source said. "We think they will wait longer than that. We don't see the Bank of Canada raising rates until the May 31 meeting."

U.S. Treasuries rallied after the sale of 30-year bonds, sending yields lower across the curve. The Treasury auctioned $13 billion of 30-year bonds at a yield of 4.515%.

The 30-year bond yield fell 3 bps to 4.5%. The two-year note yield dropped 2 bps.

Weaker economic data also helped bonds. Initial unemployment claims rose 35,000 to 445,000 in the previous week, the Labor Department said.

Nuveen sells $150 million

In other market activity, Nuveen Investments, Inc. priced a $150 million add-on to its 10½% senior notes due Nov. 15, 2015 (Caa3/CCC) at 102.75 on Thursday, resulting in a 9.357% yield to worst, according to an informed source.

The offering was sold in the United States but was eligible for Canadian investors under a private placement wrap, according to an informed source.

The deal has a change-of-control put at 101%.

The reoffer price came on top of the price talk.

Bank of America Merrill Lynch, Deutsche Bank Securities Inc., Citigroup Global Markets Inc., Credit Suisse Securities, J.P. Morgan Securities LLC, Morgan Stanley & Co. Inc., UBS Investment Bank and Wells Fargo Securities were the joint bookrunners for the quick-to-market add-on.

Proceeds will be used to pay down revolver debt and for general corporate purposes.

Nuveen is a Chicago-based provider of investment services.

Paul A. Harris contributed to this report

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