RBC sells U.S. note offering; bond spreads 5 bps to 7 bps wider; deposit notes outperform

By Cristal Cody

Prospect News, Aug. 19 - The Royal Bank of Canada brought a $50 million offering of two-year deposit notes in a U.S. deal on Friday.

Also on Friday, the Province of Quebec gave terms of its $1.4 billion of 2.75% 10-year global notes.

The few deals done in Canada over the week came as a surprise, which leads some to believe primary activity in the next week could continue.

"The tone has worsened a little bit toward the end of the day corresponding with the equities market and general cautiousness," a bond source said.

Corporate bond spreads ended the week wider but better than the previous week, according to bond sources.

"Spreads are wider 5 to 7 basis points on the week," one bond source said. "That pushes it about 20, 25 basis points on the month."

Trading volume also was lower on Friday as many on desks in Canada headed out early for the weekend.

The new issues priced over the week are trading flat to weaker, including the 10-year debentures from Sun Life Financial Inc., which widened about 5 bps in the secondary market, according to a bond source.

"The Sunlife bonds did close a little bit tighter than new issue levels but with market volatility, it gave some of that back as well," a source said.

Intact Financial Corp.'s 10-year notes sold the previous week traded about 10 bps wider on Friday.

Calloway Real Estate Investment Trust's C$90 million offering of 4.7% seven-year senior debentures was targeted to retail investors but also was seen trading weaker on lower activity on Friday.

"Not a lot of trading going on," the source said.

In the secondary market, infrastructure and higher-rated utility bonds have held in better than most, a source said. Bonds in the telecom and real estate sectors are showing more weakness "than most," the source said.

"Trading has been tough this week," the source said. "Liquidity hasn't been that great."

Bank deposit notes have outperformed over the week.

"Mostly everything is a little bit wider. Deposit notes are a couple points wider on the week, which is a little bit better than what the market's doing," the source said.

In July, Toronto-Dominion Bank (Aaa/AA-/DBRS: AA), Royal Bank of Canada (Aa1/AA-/DBRS: AA) and the Bank of Montreal (Aa2/A+/DBRS: AA) all sold five-year deposit notes.

Canadian government bonds ended Friday mostly unchanged after no market-disrupting comments emerged from testimony from the Bank of Canada governor Mark Carney and finance minister Jim Flaherty before a parliamentary committee. Some dealers do not expect the Bank of Canada to change the 1% overnight rate until 2012.

Canada's 10-year note yield was flat at 2.3%. The 30-year bond yield also was unchanged going out at 2.96%.

RBC sells two-year notes

The Royal Bank of Canada priced $50 million in a non-syndicated U.S. offering of 0.461% fixed-rate deposit notes due March 4, 2013 at par, according to final terms released Friday.

Credit Suisse Securities (Europe) Ltd. was the dealer.

The notes (Aa1/AA-/) were sold under the company's $40 billion securities issuance program.

Application has been made to list the notes on the London Stock Exchange effective Aug. 23.

The financial services company is based in Toronto.

Quebec details issuance

The Province of Quebec gave terms of its $1.4 billion of 2.75% 10-year global notes, according to an FWP filing with the Securities and Exchange Commission.

The notes (Aa2/A+/AA-) priced at 99.61 to yield 2.795% with a spread of Treasuries plus 69.3 bps, or mid-swaps plus 57 bps.

The notes are non-callable.

Bookrunners were Bank of America Merrill Lynch, Deutsche Bank Securities Inc., J.P. Morgan Securities LLC and Scotia Capital (USA) Inc.

National Bank of Canada Financial, BMO Capital Markets Corp., CIBC World Markets, RBC Capital Markets LLC and TD Securities (USA) LLC were the senior co-managers.

Co-managers were BNP Paribas Securities Corp., Casgrain & Co. Ltd., Desjardins Capital Markets, HSBC Securities (USA) Inc., Mitsubishi UFJ Securities (USA) Inc. and RBS Securities Inc.

Proceeds are being added to the Consolidated Revenue Fund of Quebec and applied to the general expenses of Quebec or will be advanced to the Financing Fund of Quebec.

Sunlife weakens

Sunlife's 4.57% senior debentures due Aug. 23, 2021 were seen trading late Friday at 220 bps bid, 210 bps offered, wider than the issue price of 214.9 bps over the Canadian government benchmark.

Sun Life Financial (DBRS: AA) sold C$300 million of the 10-year debentures, series E, on Wednesday.

"It's a little bit wider," the source said.

Sun Life Financial is a Toronto-based leading international financial services organization.

Intact Financial widens

In secondary trading, Intact Financial's 4.7% medium-term notes due Aug. 18, 2021 were quoted at 230 bps bid, 220 bps offered, a bond source said.

Intact Financial (DBRS: A) priced C$300 million of the 10-year notes at a spread of 220 bps over the Government of Canada benchmark on Aug. 12.

Toronto-based Intact Financial is the largest provider of property and casualty insurance in Canada.

Andrea Heisinger contributed to this review

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