Canada markets calm as issuers await right tone; bank notes firmer; government bonds fall

By Cristal Cody

Prospect News, Aug. 29 - The Canadian corporate and provincial bond markets started the week off on Monday on a quiet note, sources said.

"There's very little going on," a bond source said. "We're scratching our heads looking for things."

New bond offerings are not expected as August closes out.

"The door opened up there for a while. Sunlife [Financial Inc.] did an issue and Intact [Financial Corp.] did one" earlier in the month, one corporate bond source said. "We don't feel like anything has overly closed that door, but no one has wanted to walk through. I'm not a big better we'll see an issue this week."

It seems many issuers are wanting to "wait till things feel better," the source said. "If we have a couple of up days and if we have some good economic releases and if Italy and Spain have good bond issues this week, we may be in a better place."

In Canadian company news on Monday, both Moody's Investors Service and Standard & Poor's downgraded the ratings of Sino-Forest Corp. The ratings downgrades followed the resignation of Sino-Forest chairman and chief executive officer Allen Chan and the Ontario Securities Commission's order on Friday to suspend trading in the company's shares based on fraud allegations.

Since 2003, Sino-Forest has raised nearly C$3 billion from public capital markets, according to the Ontario Securities Commission. The Mississauga, Ont.-based company buys and sells timber in China.

Meanwhile, more Canadian bank earnings will be released over the week, with Bank of Nova Scotia reporting on Tuesday, Canadian Imperial Bank of Commerce on Wednesday and Toronto-Dominion Bank on Thursday. Bank of Montreal, National Bank of Canada and Royal Bank of Canada released earnings last week.

Volume was lower on Monday with the United Kingdom off for a holiday.

"Equity markets are stronger today; corporate spreads have done almost nothing," a bond source said.

Bank paper rebounds

In secondary trading, bank paper firmed about a point after widening the previous week, the source said.

"Last week, deposit notes were 6 to 8 points wider," the source said. "Subordinated debt was even wider than deposit notes last week."

Canadian government bonds dropped, pushing yields up, on the rise in equities as investors left for riskier assets.

Canada's 10-year note yield ended the day 4 bps higher at 2.45%. The 30-year bond yield climbed to 3.06% on Monday from 3.02% on Friday.

"The return of risk appetite has put bonds under pressure," a government bond source said. "It wasn't very extreme, but you still saw yields up roughly 5 to 8 basis points across most of the curve, with pressure being felt primarily in the belly of the curve."

No domestic economic data was released, while U.S. personal spending data was more positive on Monday. Canada's major economic data of the week will be the release of gross domestic product numbers on Wednesday.

"Most people in the market are looking for a flat reading," the source said.

Otherwise, most of the market is looking ahead to the Bank of Canada's next rate meeting on Sept. 7.

"Right now, the Bank of Canada has a tightening bias," the source said. "We expect them next week to revert to a neutral posture. The next time we see them moving rates is the second quarter of 2012, when we expect rates to rise."

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