Ontario, Quebec reopen bonds; provincial primary activity to slow amid budget season

By Cristal Cody

Prospect News, Feb. 8 - The provinces of Quebec and Ontario sold C$1.1 billion in reopenings of 10-year notes and long bonds on Wednesday in the Canadian market, according to sources.

The Province of Ontario sold C$600 million in a reopening of its 3.5% bonds due June 2, 2043. The Province of Quebec priced C$500 million in an add-on to its 3.5% medium-term notes due Dec. 1, 2022.

"We're seeing the provinces take advantage of what are historically extremely low long-term interest rates," a provincial bond source said. "We have seen a little bit of backup in recent weeks, but longer-term Canadian yields haven't been as low at any point in the last 60 years as they have in the last six months."

Provincial issuance likely will slow after the next few weeks until the provinces complete deficit budgets for fiscal 2012, which begins in April.

"We're getting close to budget season," a source said. "If some of these provinces think these yields are too good to pass up, we could still see more activity but we expect things will quiet for a spell."

On Wednesday, the Province of New Brunswick presented a budget update and revised its deficit projection to C$471 million for fiscal year 2011-2012 from an earlier estimate of C$546 million.

"Not a big deal, but it shows a bit of improvement," a source said.

The Province of Alberta presents its 2012 budget on Thursday.

Government bonds saw downward pressure on prices across the curve and yields traded up 1 basis point to 2 bps.

"We've seen some underperformance even today in Canada," a source said. "Treasury prices are flat to slightly higher, whereas in Canada, all the bond prices are down."

Canada's 10-year note yield rose 2 bps to 2.06%. The 30-year bond yield also rose 2 bps on the day to 2.64%.

Ontario sells C$600 million

The Province of Ontario (Aa1/AA-/DBRS: AA) raised C$600 million in a reopening of its 3.5% bonds due June 2, 2043 at 99.243 to yield 3.54% on Wednesday, a bond source said.

The bonds priced at a spread of 89.5 bps over the Government of Canada benchmark.

RBC Capital Markets Corp. was the lead manager.

The province first sold the issue on Jan. 26 in a C$600 million offering priced at 99.187 to yield 3.543%, or 88 bps over the Government of Canada benchmark.

The total outstanding now is C$1.2 billion.

Quebec retaps 10-year notes

The Province of Quebec (Aa2/A+/DBRS: A) priced C$500 million in a reopening of its 3.5% medium-term notes due Dec. 1, 2022 at 103.523 to yield 3.113% on Wednesday, a bond source said.

The notes priced at a spread of 94 bps over the Government of Canada benchmark.

National Bank Financial Inc. was the lead manager.

Quebec last sold C$500 million in a reopening of the issue on Jan. 10 at 103.875 to yield 3.078%, or a spread of 98.5 bps over the Government of Canada benchmark.

The issue originally priced on Nov. 29 at 100.6 to yield 3.434%, or a spread of 115 bps over the Government of Canada benchmark.

The total outstanding is C$2 billion.

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