Canadian bond issuers wait out poor market tone; banks flat, Kinross Gold notes widen

By Cristal Cody

Prospect News, Oct. 23 - Poor market tone may have kept Canadian issuers out of the market on Tuesday, while Royal Bank of Canada and Toronto-Dominion Bank announced acquisitions, bond sources said.

The Royal Bank of Canada said it will acquire the Canadian auto finance and deposit business of Ally Financial Inc. TD Bank said it plans to buy Target Corp.'s U.S. credit card portfolio.

"Next to nothing today," a Canadian investment-grade bond source said. "The last couple of days, it seems very little is going on. We're now a week away from the fiscal year-end for the banks."

Provincial issuers also stayed on the sidelines as the deal pipeline slows ahead of the Oct. 31 fiscal year-end, another bond source said.

"We do tend to see things slow down a little bit ahead of the bank year-end, but there still are issuers waiting in the wings," the source said. "It's been challenging today and the tone in the equity market put pressure on spreads, so today was not the best day to be thinking about doing a deal."

Corporates weak

Corporate bond spreads opened the day wider on the softer tone and ended wider.

"There didn't seem to be a lot of trading," a bond source said. "Volume's low. If we get a new issue tomorrow, that will probably pick things up in terms of secondary trading."

Paper from Toronto-Dominion Bank and Royal Bank of Canada closed flat, while Kinross Gold Corp.'s U.S. dollar-denominated notes ended weaker on the day, a market source said.

The Markit CDX Series 18 North American investment-grade index eased 3 basis points to a spread of 97 bps.

The Markit CDX Series 18 North American high-yield index dropped to 99.87 from 100.47.

Provincials, government mixed

Provincial bonds traded flat on the five-year note to slightly weaker on the longer end of the curve.

"Both 10s and 30s are about a basis point wider," a provincial bond source said. "It could've been worse, given what stocks and the credit markets are doing."

The Bank of Canada's surprisingly "hawkish statement" on Tuesday that gave a more upbeat economic outlook than forecast "might have helped offset any further widening" in provincial spreads, the source said.

The Bank of Canada left the key 1% rate unchanged.

Canadian government bonds closed mixed, with short-dated notes weaker on the day. Canada's two-year note yield rose 4 bps to 1.14%. The 10-year note yield fell 2 bps to 1.85%.

Kinross Gold wider

In secondary trading, Kinross Gold's 5.125% notes due 2021 widened 5 bps on the day to 288 bps, a market source said on Tuesday.

Kinross Gold sold $500 million of the notes (Baa3/BBB-/) at a spread of 290 bps over Treasuries on Aug. 15, 2011.

The mining and gold ore processing company is based in Toronto.

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