RBC sells U.S. dollar-denominated short notes; provincials move wider, RioCan REIT gains

By Cristal Cody

Prospect News, July 8 - Bond markets in Canada stayed light in trading and activity Friday on zero reported new issuance over the week.

There was "not a whole lot to talk to this week," said one informed bond source. "With the long weekend in both Canada and the U.S., it was just essentially a short week here."

Holidays kept the U.S. bond markets closed on Monday and the Canadian bond markets closed the preceding Friday.

Over the week, a few Canadian issuers tapped the U.S. bond markets, including the Royal Bank of Canada.

Corporate deals remain in the Canadian pipeline as issuers have held back since mid-June, while the provincial market likely will see activity in the week ahead, bond sources said.

"You can expect a little slowdown in the summer, but we'll probably get something next week," a provincial bond source said.

Provincials traded Friday a "little on the wider side," the source said. "The non-farm payroll was not great and we started on the wider side. We were half a bp wider at the open from yesterday's close and that's where they've started for the day."

The Province of Ontario's 4% notes due June 2, 2021 traded Friday at 102.54, according to an informed source. Ontario (Aa1/AA-/DBRS: AA) sold C$750 million in a reopening of the benchmark notes at 102.122 on June 22.

In corporate bond trading, Toronto-Dominion Bank's new notes firmed 1 basis point to 3 bps in trading on Friday, traders said.

RioCan Real Estate Investment Trust's 4.499% series O senior debentures due Jan. 21, 2016 (DBRS: BBB) are trading higher since they priced at the start of the year, a source said Friday.

Nortel Networks Corp. was still taking the majority of distressed investor focus, though one trader noted that even trading in that credit was slow. And, as the market was somewhat weaker, so were Nortel's bonds.

"High-yield was much better bid all week," a trader said, noting the space "finished strong today, up a point or two on the week."

Government bonds sold off after a stronger-than-expected Canadian employment report on Friday. The 10-year note yield dropped to 2.96% from 3.06%. The 30-year bond yield fell 9 bps to 3.14%.

Statistics Canada said employers added 28,400 jobs in June, compared with the 15,000 forecast. The unemployment rate was unchanged at 7.4%.

RBC sells $400 million

The Royal Bank of Canada sold $400 million of four-year global senior medium-term notes at par to yield 1.92%, according to a 424B2 filing with the Securities and Exchange Commission.

The notes (Aa1/AA-/AA) are non-callable.

Citigroup Global Markets Inc. was the bookrunner.

The bank and financial services company is based in Toronto.

TD Bank firmer

The new senior medium-term notes (Aaa/AA-) that Toronto-Dominion Bank sold in a $2.5 billion three-tranche offering on Thursday firmed in secondary trading, sources said Friday.

A tranche of 1.375% three-year notes priced a spread of Treasuries plus 65 bps. The notes due 2014 were quoted Friday at 62 bps bid, 58 bps offered, a trader said.

Another trader saw the notes 1 bp tighter at 61 bps bid, 58 bps offered.

TD Bank's 2.5% notes due 2016 were seen at 84 bps bid, 81 bps offered and tighter going out on the day at 82 bps bid, 78 bps offered, the traders said. The tranche of five-year notes priced at Treasuries plus 85 bps.

The bank and financial services company is based in Toronto.

RioCan REIT higher

RioCan Real Estate Investment Trust's 4.499% series O senior unsecured debentures due Jan. 21, 2016 traded Friday in the 102.70 area, an informed source said.

RioCan REIT raised C$225 million in an offering of the debentures on Jan. 18 at 100.075.

The Toronto-based closed-end trust is Canada's largest real estate investment trust focused on shopping centers.

Nortel notes give back

A trader said Nortel's 10¾% notes due 2016 were "basically kind of unchanged" around 108.

But another trader said the debt had come off of the previous day's highs at around 109 to end at 107½ bid, 108½ offered.

A third trader said the bonds - including the 10 1/8% notes due 2013 - were down a point, also at around 108.

A fourth trader said that Nortel's bellwether 10¾% notes due 2016 were down ½ point to ¾ point on Friday from the levels to which they had risen on Thursday, closing at 108. There was "just a lot of trading" in the issue all week, he said, "and today there was a ton too."

He said those bonds - which had been on the rise throughout the week, gaining multiple points on both Wednesday and Thursday in heavy dealings, along with other paper in the bankrupt Canadian telecommunications technology producer's capital structure - had gotten as good as 109 on Thursday, before falling back a point.

"But the volume was just astronomical," he said.

On Wednesday, the Toronto-based manufacturer of communications equipment announced that a court-ordered mediator had been appointed in its bankruptcy case, thereby causing many to believe that the drawn out case - Nortel filed for Chapter 11 protections in January 2009 - might soon be coming to a close.

Investors have also been reacting positively to the results from the previous week's patent portfolio auction, which garnered a $4.5 billion bid from a consortium that included Apple Inc. and Microsoft Corp.

Google Inc. had originally made a stalking horse bid of $900 million. The inflated price tag has led to expectations that recoveries will be greater than originally anticipated.

Still, the patent sale still has a few obstacles to clear, including a possible review by the U.S. Department of Justice for antitrust issues. Also, on Wednesday, Canada's Industry Minister, Christian Paradis, said that he is looking into whether the government should review the sale under the Investment Canada Act, which governs foreign investment in Canadian assets.

Andrea Heisinger, Paul Deckelman and Stephanie N. Rotondo contributed to this review

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