GE Capital wraps investor update; bank paper firms; bond spreads flat on holiday trading

By Cristal Cody

Prospect News, July 29 - The Canadian markets stayed quiet with the early close on Friday ahead of a long holiday weekend, while General Electric Capital Canada wrapped an investor update roadshow.

"Not sure if we're expecting them anytime soon," a bond source said of new issuance. "They had a Vancouver lunch on Monday, Winnipeg on Wednesday, Toronto on Thursday and a Montreal lunch today. They were pretty much across the country."

The bond markets in Canada will be closed on Monday, but the pace of deal activity is expected to pick up in August after a nearly quiet July.

Bond spreads were mostly unchanged after an active week in new deals, including two-high grade offerings from Toronto-Dominion Bank and the Bank of Montreal, a high-yield deal from Kruger Products LP and a provincial sale from the Province of Prince Edward Island.

"Very little trading activity went on," a bond source said Friday. "We saw some trading of financials and a little bit of trading in utility names. Deposit notes on the week are a couple [basis points] tighter. Very little trading in provies."

The new deposit notes the Canadian banks priced this week ended 1 basis point to 2 bps firmer on Friday.

In the utility sector, bonds from Enbridge Inc. (Baa1/A-/DBRS: A) were active in the secondary market but unchanged from the start of the week.

Provincial bonds also were flat on the week.

"Spreads were relatively unchanged. Provincials opened up a little soft this morning on the U.S. debt ceiling [situation], but over the week spreads were little changed," a source said.

Government bonds rally

Canadian government bonds rallied across the curve, particularly on the short end on weaker economic data in Canada and the United States.

The 10-year note yield fell to 2.78% from 2.84%. The yield on the 30-year bond dropped 4 bps to 3.289%.

Statistics Canada said Friday that the real gross domestic product fell 0.3% in May after it stayed flat in April.

"The data this morning was very soft on both sides of the border," a government bond source said.

The U.S. Commerce Department reported that the U.S. gross domestic product grew 1.3%, less than the 1.8% expected for the second quarter ended June.

"In addition, we've had further widening in Italian and Spanish spreads, so contagion risk is back on the table," the source said. "And of course, there's lingering uncertainty related to the U.S. budget impasse. All that has maintained a safe-haven bid for Canada and at the same time, it's dampened prospects for a near-term rate hike from the Bank of Canada."

Market overseers had been growing in expectations that the Bank of Canada would increase the 1% key rate at the next meeting in September after the hawkish bank statement released on July 19.

"The latest statement from the bank certainly puts a September hike on the table," the bond source said. "The market hasn't taken that view as of yet - there's only a 10% probability implied the bank will hike in September. But if there's a cooling in the event risks surrounding Europe in particular, a September hike is possible."

Toronto-Dominion Bank tighter

The 2.948% deposit notes due Aug. 2, 2016 that Toronto-Dominion Bank (Aaa/AA-/DBRS: AA) priced in a C$1.75 billion offering on Wednesday traded tighter on Friday at 81 bps bid, 79 bps offered, a bond source said.

The notes priced at 83 bps over the Canadian bond curve.

The bank and financial services company is based in Toronto.

Bank of Montreal firmer

Also in the secondary market, the five-year deposit notes that Bank of Montreal (Aa2/A+/DBRS: AA) sold on Wednesday traded about 1 bp tighter, a source said Friday.

Bank of Montreal sold C$1 billion of 2.96% notes due Aug. 2, 2016 at a spread of 82.4 bps over the Canadian government benchmark.

The five-year notes traded on Friday at 82 bps bid, 81 bps offered.

The financial services company is based in Montreal and Toronto.

Enbridge unchanged

In other trading, Enbridge's 5.17% notes due May 2016 were seen on Friday at 93 bps bid, 88 bps offered, unchanged from the start of the week but moderately active, a bond source said.

Enbridge reports second-quarter results on Aug. 5.

The Calgary, Alta.-based oil and gas transporter and distribution company is Canada's largest natural gas distributor.

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