Canada issuers take timeout in corporate, provincial sectors; Sherritt bonds trade lower

By Cristal Cody

Prospect News, April 25 - Canadian bond markets saw more activity in the secondary market on Wednesday as corporate and provincial issuers took a breather in the primary market.

"Nothing in the market today," a syndicate source said. "There was not even a provincial bond issue. We kind of thought there might be and there wasn't. It was a day of secondary trading."

The Province of Quebec (Aa2/A+/DBRS: A) raised C$500 million on Tuesday in a reopening of 4.25% medium-term notes due Dec. 1, 2043.

A 10-year note offering is expected this week from the Province of Ontario after the province passed its budget on Tuesday.

A couple of potential corporate offerings remain on the table but no deals have emerged yet, sources said on Wednesday.

Korea Gas Corp. wrapped a two-day roadshow in Canada on Tuesday but "nothing has come of it in terms of a deal," an informed source said on Wednesday.

The same for BAA Airports Ltd., which held a roadshow in Canada the previous week hosted by Bank of America Merrill Lynch, CIBC World Markets Inc. and RBC Capital Markets Corp.

BAA Airports reported on Wednesday that first-quarter profit climbed 15.1% and revenue rose 11.5% over the same period a year ago.

The London-based operator of airports including Heathrow and Glasgow on Monday agreed to a $1.3 billion sale of the Edinburgh airport.

In the secondary market, on the investment-grade side, a source saw "a bit more interest in some bank bonds."

Bonds traded mostly better on the day. The Markit CDX Series 18 North American investment-grade index firmed 2 basis points to a spread of 98 bps.

On the high-yield side, Sherritt International Corp.'s senior notes (DBRS: BB) traded lower after the company reported first-quarter earnings on Wednesday.

Canadian government bonds fell, sending yields up, on the back of the U.S. Federal Reserve's policy statement that showed no hint of a third round of quantitative easing to stimulate the economy.

That was "in contrast to the Bank of Canada statement last week that was a lot more hawkish than expected, so we've seen bond yields move higher than in the U.S.," a bond source said.

Canada's 10-year note yield rose 3 bps to 2.1% on Wednesday. The 30-year bond yield edged up 1 bp to 2.64%.

U.S. Treasuries performed better on the short end with the yield on the long end up 2 bps.

"That is still suggesting the Canadian economy is further along the road to recovery and basically helped bond yields move higher," the source said. "The Bank of Canada is able to consider taking interest rates higher before the Federal Reserve."

Korea Gas wraps roadshow

Korea Gas (A1/A/A+) wrapped a two-day roadshow in Canada on Tuesday, but the "roadshow was overblown" with no transaction yet from it, a source said.

Scotia Capital Inc. and Bank of America Merrill Lynch were the roadshow organizers.

Korea Gas previously sold maple bonds in Canada on May 3, 2011. Korea Gas priced C$300 million of 4.58% senior notes due May 12, 2016 at 99.978 to yield 4.585%, or a spread of 203 bps over the Canadian bond curve.

Korea Gas is a public natural gas company incorporated by the Korean government.

Sherritt edges lower

Sherritt's 8¼% notes due 2014 and 7¾% notes due 2015 traded late in the day at 108 bid, a source said on Wednesday.

Sherritt's two- and three-year notes traded in the 108.25 to 108.5 area in early April.

The two-year notes were sold in a C$225 million offering on Oct. 18, 2007 at par.

The company's 8% notes due 2018 also traded lower at 107 bid, down from 107.75 bid at the start of the month.

Sherritt sold C$400 million of the 8% notes at par on Oct. 28.

Sherritt reported first-quarter revenue that fell to C$462.2 million from C$475.5 million a year ago. Earnings dropped in the first quarter ended March 31 to C$32.3 million from C$63.6 million in the year-ago period.

Toronto-based Sherritt International produces coal, oil, gas and power, and it mines and refines nickel.

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