Markets stabilize, bonds still end wider; First Capital prices C$65 million in reopening

By Rebecca Melvin

New York, June 3 - Canadian bond markets stabilized Friday and were relatively quiet after an ISM non-manufacturing reading provided some relief following an abysmal U.S. nonfarm payrolls report that sent investors scurrying for safety sent bond prices higher again.

The Institute for Supply Management on Friday said its services index rose to 54.6% last month from 52.8% in April. Nonfarm payrolls rose by a seasonally adjusted 54,000 in May, the smallest gain since September and a fraction of downwardly revised forecasts for 100,000 to 150,000 jobs.

"Canada markets are rallying off the highs quite substantially," an informed source said during the session. "Nonfarms was a disaster, but ISM came in stronger than people were fearing."

Corporate spreads came off 2 to 5 basis points, and provincial spreads were off by about a basis point.

"Spreads blew out, and they have since come back in a little bit. But they are wider on the day," he said.

In government bonds, the five-year bonds were out 0.5 basis points, and the 10-year and long bond were a couple of basis points wider, a separate informed source said.

Canada's two-year government bond yield declined to 1.429% from 1.475%, and the 10-year bond yield slipped to 2.979% from 3.028%.

First Capital Realty Inc. sold C$65 million of 5.6% series M senior debentures due April 30, 2020 in a reopening during the session that priced at a spread of 237.3 bps over the Government of Canada.

"The market was kind of choppy", but the First Capital deal "opened up and was issue bid" in the secondary market after pricing unexpectedly, a syndicate source said.

In general, investors stepped in to buy to take advantage of spread widening.

British Columbia underperforms

The long Province of British Columbia bonds that priced on Wednesday underperformed for the week. They came at a 78.5 basis points spread and were 5 bps wider on Friday near the close, an informed source said.

"From issue, they underperformed," he said. "The timing wasn't great and the Street was left a little long."

The long Province of Ontario bond that came on Tuesday was at an 83.5 bps spread on Tuesday and on Friday was at 88 bps on the bid, a sellside source said.

"At the time that the B.C. paper priced, it [Ontario] was 84 on the bid," the sellsider said.

CHUM may crimp bids

For next week, market players were eyeing Centre Hospitalier de l'University de Montreal's $1.4 billion of bonds that are expected to price via RBC Capital Markets.

The bond will run for 37 years and is rated BBB by Moody's and BBB+ by DBRS.

"It's BBB rated, with spread talk 300 basis points over Canada's benchmark," an informed source said. "That may put a bit of pressure on bids."

After the sizable Montreal medical center bond, which goes by the French acronym CHUM, the focus will shift to the Canada mortgage issue for the following week.

"Supply will rise; we could see a large amount of supply, and Ontario and Quebec could come to market if conditions are right," the source said.

First Capital prices

First Capital Realty, a Toronto-based owner and developer of supermarket- and drugstore-anchored shopping centers, sold Friday C$65 million of 5.6% series M senior debentures due April 30, 2020 in a reopening at a price of 102.486 to yield 5.244%, according to a syndicate source.

The debentures priced at a spread of 237.3 basis points over the Government of Canada benchmark.

The deal size now stands at C$175 million, including First Capital's $110 million of the series initially priced in March.

TD Securities Inc. was lead manager of the reopening.

The offering was being made under the company's base shelf prospectus dated May 25.

Proceeds will be used for development and redevelopment activities, acquisitions and for general corporate purposes.

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