Canadian financials firm; government sells real return bonds 4 bps cheaper than market

By Cristal Cody

Prospect News, Aug. 31 - Canadian financial paper performed better in trading on Wednesday, while the primary market continued to take a backseat domestically, bond sources said.

Canadian dollar-denominated corporate deals rose about 10% for the year to date through August to C$98.02 billion, up from C$89.14 billion through July, according to data compiled by Prospect News.

"In three weeks, we'll have had a total of three institutional deals for a total of C$950 million," one bond source noted. "That's it [for August]."

New deals are expected to pick up in the corporate and provincial bond markets in the first half of September, according to sources.

In trading on Wednesday, Toronto-Dominion Bank's five-year notes firmed 3 basis points, a trader said.

Government bond markets traded more off of stronger U.S. economic data and largely ignored the weaker Canadian gross domestic product number that showed the economy shrank in the second quarter, sources said.

"It hasn't really been a big market mover here," one source said. "People figured there was risk of a negative GDP print."

Statistics Canada said the real GDP fell 0.1% in the second quarter, mostly on a drop in exports, following a 0.9% increase the previous quarter.

The drop, though, is not expected to push the Bank of Canada into raising the 1% rate at the upcoming Sept. 7 policy meeting, with at least one economist not forecasting a rate hike until late 2012.

Bonds fell across the curve as stocks continued to rally. The 10-year note yield rose 9 bps to 2.49%. The 30-year bond yield increased 8 bps to 3.1%.

The Bank of Canada's auction of C$400 million of 1.5% real return bonds due Dec. 1, 2044 at a high yield of 0.899% on Wednesday was considered decent.

"The auction came cheaper than where the market had been trading by about 4 basis points and improved somewhat afterward," a source said. "Pretty good results, given how low real yields are now."

TD Bank tightens

Toronto-Dominion Bank's 2.5% senior medium-term notes due 2016 traded "3 basis points better on the day," a trader said.

The notes (Aaa/AA-) firmed to 103 bps bid, 93 bps offered.

Toronto-Dominion Bank sold $1.25 billion of the notes on July 7 at Treasuries plus 85 bps.

The bank and financial services company is based in Toronto.

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