Ontario, provincial bonds widen; Royal Bank of Canada firms; deal calendar lightens

By Cristal Cody

Prospect News, April 15 - The Canadian bond markets ended the week quiet, though some provincial deals are forecast to be in the works by the end of the month, sources said Friday.

"Going forward the calendar is light," a source said. "Ontario is rumored to be looked at a long deal, they may be in the market the next couple of weeks depending on market tone. They have [about] C$700 million to do this year, preferably in the long end."

Market tone for the week was soft on overseas concerns.

Looking at the provincial bond market, it's "been fairly quiet the last couple of days after the Ontario deal that came on Tuesday," an informed source said. "Spreads drifted slightly wider, a basis point to two on the week."

The Province of Ontario's 4% benchmark notes due June 2, 2021, which it reopened on Tuesday, widened ½ bp in trading on Friday, the source said.

In corporate bond trading, Royal Bank of Canada's new five-year notes (Aa1/AA-/AA) priced on Tuesday firmed about 2 basis points, a trader said.

Also, a trader saw Nortel Networks Corp.'s 10¾% notes due 2016 holding at Thursday's trading levels.

Canadian government bonds rallied along with U.S. Treasuries going into the weekend. The 10-year bond yield dropped 6 bps to 3.3%. The 30-year bond yield fell 4 bps to 3.73%.

"Both Treasuries and Canada is rallying quite a bit," a source said. "It was a little softer mid-morning but we saw bonds rallying throughout the day, more on worries overseas and potential of Greek debt restructuring. Bonds are going into the weekend well bid."

Treasuries rallied on Friday on softer economic data, sending yields down nearly 10 bps across the curve. The benchmark 10-year Treasury note yield fell 9 bps to 3.41%. The 30-year bond yield fell 8 bps to 4.47%.

In data released Friday, the consumer price index rose 0.5% in March, the Labor Department said. The core CPI rose 0.1% in March, less than the expected consensus.

Royal Bank of Canada firms

Royal Bank of Canada sold $1.75 billion of notes including three-year floaters and five-year fixed-rate notes in a U.S. dollar-denominated deal earlier in the week.

The 2.875% notes due April 19, 2016, which priced at 73 bps over Treasuries, were seen "straddling 71, 69," a trader said.

RBC is a Toronto-based investment bank.

Nortel holds

A trader saw Nortel Networks' 10¾% notes due 2016 at 90 bid, 91 offered, about the level to which the bankrupt Toronto-based communications equipment manufacturer's bonds had fallen to on Thursday, when they lost between 1½ and 2 points after mediation efforts trying to hammer out a formula for the allocation of the sale proceeds of Nortel's various business and asset divestitures had failed, raising the possibility of "significant" additional delays in distributed the asset proceeds to the creditors.

On Friday, there was some potentially positive news, with reports that Research In Motion Ltd., the maker of the popular BlackBerry smartphone devices, is considering making a bid for Nortel's portfolio of wireless technology patents which would exceed the $900 million offer already on the table from Google Inc., the designated stalking-horse bidder.

RIM is said to be possible considering to work with other technology companies in an effort to buy control of the 6,000 Nortel technology patents in order to block Google from strengthening its already-commanding position in the high-tech world. Some of the patents in question are already used under license in BlackBerrys, as well as phones that run on Google's Android operating system

Under the rules of the bankruptcy auction, if RIM decides to challenge Google, it would have to bid at least $929 million for the patent portfolio. Subsequent bids from either company or from any other entrants must then increase in increments of at least $5 million.

Ontario wider

In the provincial secondary market, the bonds reopened from Ontario (Aa1/AA-/DBRS: AA) earlier in the week widened on Friday, a source said.

The province sold C$750 million in a reopening of its 4% benchmark notes due June 2, 2021 at a spread of 70.5 bps over the Government of Canada benchmark on Tuesday.

"We're at 71 bid on the Ontario," the source said.

The province previously reopened the issue on March 31 to sell C$750 million of the notes at a spread of 71.5 bps over the government benchmark. The total outstanding now is C$3 billion.

Paul Deckelman contributed to this review

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