Canada's markets quiet on lack of liquidity; Kinross Gold widens, Toronto-Dominion flat

By Cristal Cody

Prospect News, Dec. 21 - Canadian bond markets traded quietly on Wednesday as liquidity continued to dry up in the seasonal slowdown, sources said.

Corporate bond spreads were tighter overall on Wednesday. The Markit CDX Series 17 North American investment-grade index firmed 2 basis points to a spread of 125 bps.

Toronto Dominion Bank's 2.375% notes due 2016 traded unchanged as financials mostly improved, sources said.

In other trading, Kinross Gold Corp.'s bonds widened in the secondary market as gold prices slipped.

Lack of liquidity is expected to continue even more so for the remainder of the short trading week and the upcoming week, though a C$100 million deal is expected from government issuer Hydro One Inc. for 4% bonds due 2051 (DBRS: A).

The corporate and provincial bond markets are "effectively closed for the year," a bond source said. "We're in that pre-Christmas lull."

Deal levels are expected to pick up in January with at least one high-yield deal in the works for the latter part of the month, a source said.

Provincial issuance also is expected to pick up quickly in January, according to one source.

"We firmly expect provincial governments will come out of the gate running in 2012," the source said. "Ontario and Quebec and others have a desire to pre-fund - to get a jumpstart on next year's fiscal year funding requirements, which starts April 1."

Moody's Investors Service's credit outlook drop to negative on the Province of Ontario's debt rating the previous week has done little to impact bond spreads, a source said Wednesday.

"We had already seen the ratings action from Standard & Poor's and DBRS," the source said. "In many respects, the markets had priced in the weaker credit quality of Ontario. The Moody's outlook was really a catch-up move. As a result, it had limited market reaction."

The province, which has about C$190 billon of outstanding debt., is rated Aa1 by Moody's, AA- by Standard & Poor's and AA by DBRS.

Ontario's 4.4% notes due June 2, 2019 traded on Wednesday at 113.33, a market source said. The province reopened the issue on Oct. 18 at 110.995 in a C$1 billion offering.

The move does refocus attention on Ontario but no changes in the province's borrowing schedule are expected.

"The Moody's outlook change importantly came after [Ontario's] mid-year report, which fully acknowledged a weaker economic backdrop," the source said.

Canadian government bonds fell, sending yields up 2 bps to 3 bps. The 10-year note yield rose 2 bps to 1.95%. The 30-year bond yield rose 3 bps to 2.49%.

Retail sales rose 1% to C$38.6 billion in October, the third straight monthly increase, Statistics Canada said on Wednesday. The increase was led by higher sales at motor vehicle and parts dealers and gasoline stations.

TD Bank unchanged

In secondary trading, Toronto-Dominion Bank's 2.375% senior medium-term notes due 2016 traded unchanged on the day in the U.S. high-grade market at 138 bps bid, 128 bps offered, a trader said on Wednesday.

The bank sold $1.5 billion of the series A notes (Aaa/AA-) at 135 bps over Treasuries on Oct. 12.

The bank and financial services company is based in Toronto.

Kinross Gold weaker

In other trading across the border, Canadian Kinross Gold's senior notes (Baa3/BBB-/BBB-) widened this week, a trader said on Wednesday.

The 6.875% bonds due 2041 widened to 395 bps bid, 375 bps offered on Wednesday. The bonds priced at 315 bps over Treasuries in a three-tranche $1 billion offering of senior notes (Baa3/BBB-/BBB-) on Aug. 16.

The tranche of 5.125% notes due 2021 was quoted on Tuesday wider at 375 bps bid, 355 bps offered. The 10-year notes priced at a spread of 290 bps over Treasuries.

"Not the most liquid thing in the world," the trader said.

The mining and gold ore processing company is based in Toronto.

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