Bank of Montreal, Goldman Sachs, Toronto-Dominion, Quebec wake up bond market slumber

By Cristal Cody

Prospect News, April 26 - The Bank of Montreal, Goldman Sachs Group, Inc., Toronto-Dominion Bank and the Province of Quebec tapped a sleepy bond market on Tuesday ahead of the Federal Reserve's policy statement on Wednesday.

"Corporate issuance was up," one source said.

Bond markets remained "choppy" as people returned from the long holiday weekend, a source said.

Canadian government bonds rallied along with U.S. Treasuries, surprising the market ahead of the Federal Reserve's policy statement on Wednesday.

Canada's 10-year bond yield fell to 3.19% from 3.24%. The 30-year bond yield fell 2 basis points to 3.68%.

"Government bonds are up, slightly underperforming the U.S.," a government bond market source said. "There's a lot of volatility in the system."

Treasuries exhibited surprise strength and finished the day higher.

The benchmark 10-year Treasury note yield dropped 6 bps to 3.3%. The 30-year bond yield fell to 4.39% from 4.45%.

"It's surprising, especially [given] the fact we've got $99 billion in coupon supply and the Fed meeting results tomorrow and Bernanke's press conference following that," said Mary Ann Hurley, a fixed income trader for D.A. Davidson & Co.

Federal Reserve chairman Ben Bernanke is expected to be "dovish" in his commentary.

Bank of Montreal prices

In a U.S. dollar-denominated deal, the Bank of Montreal sold $1.1 billion of senior notes (Aa2/A+/AA-) in two tranches on Tuesday, an informed source said.

A $500 million tranche of three-year floating-rate notes priced at par to yield three-month Libor plus 47 bps.

The second part was $600 million of 1.75% three-year notes priced at 99.919 to yield 1.778% with a spread of Treasuries plus 70 bps.

Bookrunners were BMO Capital Markets, Barclays Capital Inc., Goldman Sachs & Co. and J.P. Morgan Securities LLC.

Proceeds are being contributed to one or more affiliates in connection with funding requirements of the expected acquisition of Marshall & Isley Corp.

In the secondary market, traders saw the fixed-rate notes slightly tighter. The floating-rate notes were quoted flat at Libor plus 47 bps.

The 1.75% notes due 2014 were quoted at 69 bps bid, 67 bps offered and later at 70 bps bid, 65 bps offered, according to the traders.

The financial services company is based in Montreal and Toronto.

Goldman Sachs sells Maples

Goldman Sachs (A1/A/DBRS: A) sold an upsized C$500 million of 5% senior Maple bonds due May 3, 2018 at 99.842 to yield 5.027% on Tuesday, an informed source said.

The bonds priced at a spread of 213 bps over the Canadian bond curve, tighter than guidance of 215 bps over the curve.

The deal was upsized from C$400 million.

The joint bookrunners were Goldman Sachs & Co., TD Securities Inc., RBC Capital Markets Corp., Scotia Capital Inc., BMO Capital Markets Corp., CIBC World Markets Inc. and National Bank Financial Inc.

The financial services company is based in New York City.

TD talks mortgage-backeds

Also in corporate bonds, Toronto-Dominion Bank launched C$400 million in a three-tranche issue of mortgage-backed notes (Aaa/AAA) on Tuesday, an informed source said.

The bonds were expected to price late Tuesday but had not priced by press time. The notes are eligible for sale under Regulation D.

"Still waiting to price," one bond source said late afternoon.

The deal includes C$100 million of 2% notes due March 1, 2014 talked at 41 bps over the Government of Canada benchmark.

The second tranche includes C$100 million of 2.6% notes due April 1, 2016 talked at 57 bps over the government benchmark.

The bank's final tranche of 2.65% notes due April 1, 2016 was talked at 57 bps over the benchmark.

TD Securities Inc. is the bookrunner. Co-managers include Scotia Capital, RBC Capital Markets, BMO Capital Markets, CIBC World Markets and Desjardins Securities Inc.

Quebec sells C$500 million

In the provincial market, Quebec (Aa2/A+//DBRS: A) sold C$500 million in a reopening of its 4.25% benchmark notes due Dec. 1, 2021 at 101.163 to yield 4.113% on Tuesday, an informed source said.

The notes priced at a spread of 79 bps over the Government of Canada benchmark.

National Bank Financial was the lead manager.

The issue was previously reopened on March 30 to sell C$500 million at a 78 bps spread. The total outstanding now is C$2.5 billion.

Andrea Heisinger contributed to this review

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