Canadian issuers look to later in week for deals on Monday's weak tone; bonds trade flat

By Cristal Cody

Prospect News, April 23 - Canadian bond issuers stayed to the sidelines in the weaker market tone on Monday, but some primary activity is expected over the week, according to informed sources.

"Very slow, nothing today," one syndicate source said.

An offering from BAA Airports Ltd., which held a roadshow in Canada the previous week, remains on the table. The London-based operator of Heathrow, Glasgow and Edinburgh airports reports first-quarter earnings on Wednesday.

Bank of America Merrill Lynch, CIBC World Markets Inc. and RBC Capital Markets Corp. are the managers.

In Canada's provincial primary bond market, an offering of 10-year notes or 30-year bonds from the Province Quebec and a 10-year note sale from the Province of Ontario is likely this week, a source said on Monday.

"There is some speculation Ontario would love to do a deal in the 10-year term this week," a source said. "They need to formally approve the budget, which hopefully happens tomorrow. We'll assess what happens after that."

Also on Tuesday, the Province of Newfoundland, a borrower seldom seen in the market, finalizes its budget.

The Province of British Columbia, which sold $1.5 billion of bonds (Aaa/AAA/AAA) in the U.S. market on Wednesday, may sit this week out in Canada, the source said.

The Markit CDX Series 18 North American investment-grade index eased 1 basis point to a spread of 101 bps on Monday.

"Not really a great day in the credit market," a source said on Monday. "It hasn't been the best tone."

Weaker European and Chinese data combined with euro political disruptions caused the weaker tone. The Dutch government resigned Monday over budget disagreements while Sundays' French presidential election has resulted in a run-off election between incumbent Nicolas Sarkozy and opposition candidate Francois Hollande.

Canadian bank and financial paper traded mostly flat on the day. Bank of Nova Scotia's notes traded unchanged on Monday.

Teck Resources Ltd.'s bonds traded 2 bps wider on the day.

Provincial bond "spreads were a little wide today," a source said. "They drifted by half a basis point to a basis point wider just on the back of the soft tone in equity markets."

Government bonds traded mostly better on the weaker global tone. Canada's 10-year note yield fell 2 bps to 2.04%. The 30-year bond yield ended 1 bp lower at 2.6%.

IBRD distribution

The International Bank for Reconstruction and Development (Aaa/AAA/) released more distribution details about its sale on Friday of C$400 million of 1.7% three-year notes.

IBRD sold C$400 million of 1.7% three-year notes on Friday at 99.959 to yield 1.714%, or a spread of 25 bps over the Government of Canada benchmark.

The bonds were placed with institutional investors, and central banks and institutions made up 47% of distribution, bank treasuries purchased 35% of the notes, and asset managers bought 18% of the offering.

According to the release from IBRD, the investor distribution by geography showed investors in Asia purchased 30% of the notes; Canadian investors bought 25%; investors in the rest of North America took 24% and investors in Europe, the Middle East and Africa received 21% of the deal.

RBC Capital Markets was the bookrunner.

"As we watched global demand for CAD grow it became clear that there was a unique opportunity for an issuer who could appeal to both domestic and offshore investors," said Jigme Shingsar, managing director, head of U.S. SSAs at RBC Capital Markets, in the release from IBRD. "World Bank's unquestioned credit quality and truly global investor penetration made it the ideal way to re-open the global market for larger more liquid CAD issuance from a supranational."

The Washington, D.C.-based arm of World Bank Group provides loans to developing countries.

Scotiabank flat

In the secondary market, Bank of Nova Scotia's 2.55% notes due 2017 (Aa1/AA-/) traded unchanged on the day at 90 bps over Treasuries, a source said on Monday.

Scotiabank sold $1.25 billion of the notes (Aa1/AA-/) on Jan. 5 at a spread of 172 bps over Treasuries.

The Canadian bank is based in Halifax, N.S.

Teck lower

Teck's 4.475% notes due 2022 eased 2 bps to 205 bps bid, 185 bps offered in trading on Monday, a trader said.

The company sold $700 million of the notes on June 29 at a spread of Treasuries plus 165 bps.

The diversified mining company is based in Vancouver, B.C.

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