Yellow Media, Toronto-Dominion weaker; primary stays quiet; bonds widen on light trading

By Cristal Cody

Prospect News, Aug. 5 - Canadian bond markets ended the week wider on zero new corporate issuance and low trading volume, according to bond sources.

"Spreads are wider but I'd be hard-pressed to believe anything traded today," one bond source said. "Bid/offers have widened out, but it doesn't look like people are trading much."

Bonds across all sectors widened generally 5 basis points to 10 bps by late afternoon, the source said.

No new deals are "in the works" for the week ahead, according to an informed source.

"We don't anticipate seeing any issuances. We've heard talk but it's not that type of market where you can get a deal done," the source said.

In the secondary market, Yellow Media Inc.'s bonds moved lower after the company was downgraded by Standard & Poor's and DBRS the previous day.

Financial bonds also were weaker on the day. The 2.948% five-year deposit notes that Toronto-Dominion Bank priced on July 27 widened "5 to 10 basis points," a bond source said Friday.

Government bonds fell on Friday on a better job report. Statistics Canada said the unemployment rate fell 0.2% to 7.2% in July.

Canada's 10-year note yield rose 10 bps to 2.63%. The 30-year bond yield closed at 3.22% from 3.11% on Thursday.

"Everything's wider. The employment numbers for Canada were reasonable," a bond source said. "We're in a holding pattern now until we see more news and get an indication if this is going to improve."

Yellow Media lower

Yellow Media's bonds traded about C$2 lower since the company announced a second-quarter loss and reduced its dividend and after two credit ratings agencies dropped their ratings on the company on Thursday, a trader said.

S&P said it dropped the rating to BB+ from BBB-.

"Primarily because they got downgraded by S&P, a lot of people are not allowed to hold non-investment-grade paper and they sell, so it's put a little bit of pressure on the market," the trader said.

Yellow Media's 6.85% notes due 2013 traded at 97 on Friday, while the company's 5.71% notes due 2014 were seen at about 94.

"They are weaker," the trader said.

On Thursday, DBRS said it downgraded Yellow Media's medium-term notes to BBB from BBB (high) and its commercial-paper rating to R-2 (high) from R-1 (low) on risk the company faces as it moves from print to digital.

Montreal-based Yellow Media is Canada's largest directory publisher.

Toronto-Dominion Bank wider

Bonds from major Canadian banks including Toronto-Dominion Bank (Aaa/AA-/DBRS: AA) widened in light trading on Friday, according to a trader.

Toronto-Dominion Bank sold C$1.75 billion of 2.948% five-year deposit notes at 83 bps over the Canadian bond curve on July 27. "They're in the high 80s now," the trader said.

The bank and financial services company is based in Toronto.

Sino-Forest extends losses

A trader said that even though Friday was not the market debacle that Thursday had been, "you still had some names here that were down multiple points, on pretty good volume."

He saw Sino-Forest Corp.'s 10¼% notes due 2014 down 4 points on the day, last trading at 70 bid.

The bonds eased despite the disclosure on Friday that a large Singapore-based fund - The Mandolin Fund, run by New Zealand-born billionaire Richard Chandler - had increased its already sizable equity stake in the embattled Canadian-Chinese timber company.

The fund -which has been gradually boosting its stake in the company, disclosed that it had bought another 2.7 million Sino-Forest shares on Thursday, raising its stake to 18%.

Chandler's buying, and stock buys by other funds, have helped to revive the company's shares, bringing them back up to current levels a little under C$6, from their lows at C$1.29 which they had hit in mid-June.

The company's stock had fallen in recent months after Hong Kong-based Muddy Waters LLC, a trading and research fund run by short-seller Carson Block, had released a devastating report in which it alleged company officials had engaged in fraudulent practices, charges which the company has vehemently denied.

The claims hammered Sino-Forest's bonds down from around the par level and caused the stock to nosedive from its pre-report level above C$18.00 per share.

Sino-Forest's biggest holder, the hedge fund run by billionaire investor John Paulson, eventually sold its entire stake in the company after seeing the value of its position decimated by more than 90%. But Paulson defended his fund's rationale for making its investment in the first place, challenging and rebutting Block's charges of corporate chicanery.

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