Canadian bank deposit notes end week 20 bps better, mortgage bonds widen, high-yield tightens

By Cristal Cody

Prospect News, Sept. 16 - Canadian financial paper ended the week much stronger in the bond markets, while high-yield bonds tightened and mortgage bonds widened, sources said Friday.

Corporate bond spreads tightened early morning at the session open and were seen ending the day about 1 basis point to 2 bps tighter, a bond source said.

"Financial spreads have tightened quite a bit this week," a source said. "Deposit notes are in almost 20 basis points in the last three days."

The Bank of Montreal's five-year deposit notes sold in July traded 20 bps better on Friday.

Toronto-Dominion Bank's five-year deposit notes also improved in trading.

"These things came at 82 basis points, so there was a 45 basis point widening in the last two weeks," the source said. "Overall better market tone and recent spread widening is causing investors to come in, buying on the dips."

Canada mortgage bonds widened about 2 bps on the day, "more so in the five-year," a source said. "That may be in anticipation of the five-year fixed deal coming next week. There's a little bit of selling on the scene."

Canada Housing Trust (Aaa/AAA/DBRS: AAA) plans to price C$5 billion to C$6 billion in five-year Canada mortgage bonds in the upcoming week.

Canada Housing Trust's existing 2.75% mortgage bonds due June 15, 2016 traded on Friday at 36 bps bid, the source said.

The bonds were quoted on Thursday at a spread of 33 bps over the Canadian government benchmark. The trust reopened the 2.75% five-year bonds on June 15 in a C$6 billion offering priced at 25 bps over.

Bond spreads also were about 25 bps tighter on the week in Canada's high-yield market, a trader said. Trading was active on Friday in names that included Cascades Inc., Paramount Resources Ltd. and Connacher Oil & Gas Ltd.

Spreads in provincial bonds "are ending a little soft on the day," a source said. Provincial bonds were closing Friday unchanged in five-year bonds and about 1 bp wider in 10-year notes and long bonds.

Government bonds closed mostly flat on fear of a Greek debt default. Canada's 10-year note yield fell 1 bp to 2.29%. The 30-year bond yield was unchanged at 2.92%.

"The market tone this morning was definitely better than it is later today," a bond source said in the afternoon. "This morning there was optimism and since then a couple of negative headlines have caused equities to end the day mixed in Europe and bonds have become better bid throughout the day."

Bank of Montreal tightens

In the secondary market, the Bank of Montreal's 2.96% notes due Aug. 2, 2016 were seen early Friday at 105 bps bid "after widening to 125 earlier this week," a bond source said.

Bank of Montreal (Aa2/A+/DBRS: AA) priced C$1 billion of the notes at a spread of 84 bps over the Canadian bond curve on July 27.

The financial services company is based in Montreal and Toronto.

TD Bank firms

Along with other financial paper, the five-year bank deposit notes that Toronto-Dominion Bank (Aaa/AA-/DBRS: AA) sold earlier in the year were better in trading, a source said Friday.

The 2.948% notes due Aug. 2, 2016 traded at 102 bps bid, firmer than the 123 bps area seen earlier in the week, the source said.

The bank sold C$1.75 billion in 2.948% notes due Aug. 2, 2016 at 83 bps over the Canadian bond curve on July 27.

The bank and financial services company is based in Toronto.

Cascades higher

In the high-yield secondary market, Cascades' 7.75% five-year notes due Dec. 15, 2016 (Baa3/B+) traded Friday at 99, up from 98 a week ago, a trader said.

The company sold the notes on Nov. 18, 2009 at 98.67.

Cascades is a Kingsey Falls, Quebec-based producer, converter and marketer of packaging and tissue products.

Paramount active

Trading in Paramount Resources' bonds was more active ending the week, though the 8.25% series 2 senior unsecured notes due Dec. 13, 2017 (Caa2/B+/) were unchanged from a week ago at 101, a trader said Friday.

The company sold C$300 million of the notes at par on Nov. 30, 2010.

Calgary, Alta.-based Paramount Resources is an oil and natural gas exploration, development and production company.

Connacher Oil drops

Activity in Connacher Oil's 8.75% notes due 2018 picked up on Friday, though the notes are lower from a week ago, according to a trader.

The notes fell to the 80 area on Friday from 82 a week ago.

Connacher Oil sold the C$350 million tranche of notes due Aug. 1, 2018 at par on May 20.

The integrated oil company is based in Calgary, Alta.

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