Scotiabank prices $1.25 billion notes; RBC debt weaker; Canadian government bonds fall

By Cristal Cody

Prospect News, Sept. 30 - The Bank of Nova Scotia priced a benchmark $1.25 billion of 2.05% five-year senior notes (Aa1/AA-/AA-) at a spread of Treasuries plus 83 basis points, a source close to the sale said.

The offering priced around the market close at the tight end of guidance, which was in the 85 bps area. The notes launched at 83 bps, the source said.

Books were oversubscribed at roughly $1.8 billion.

Bank of America Merrill Lynch, Citigroup Global Markets, Morgan Stanley & Co. Inc. and Scotia Capital were the bookrunners.

Proceeds are going for general corporate purposes.

The financial services company is based in Toronto and Halifax, N.S.

RBC wider

Also in the corporate market, the Royal Bank of Canada's new debt was slightly weaker in the secondary market, a source said.

RBC sold $1 billion of 1.25% notes due 2014 (Aaa/AA-) on Wednesday at 53 bps over Treasuries.

The notes were quoted Thursday afternoon at an offer of 54 bps, the source said.

The financial services company is based in Toronto.

Government bonds fall

Canadian bonds rallied early but then fizzled late in the day, tracking U.S. Treasuries.

"We saw a bit of a rally in the front end, no performance," said Kam Bath, a fixed income strategist with RBC Capital Markets Corp. in Toronto. "We're down 3 basis points on the two-year."

Bonds fell on Bank of Canada comments that reduced expectations for another rate increase.

"Now it's about 25% odds that the rates will be raised," Bath said.

Canada's 10-year bond yield rose to 2.758% from 2.72%.

Longer-dated U.S. Treasuries fell on Thursday, sending yields up, on improved economic data.

The two-year note yield fell 2 bps to 0.4%. The yield on the 10-year note rose 1 bp to 2.51%. The 30-year bond yield rose 1 bp to 3.69%.

"Last minute window dressing by portfolio managers for the quarter also likely shaped market activity today," a source said.

In economic data, the Labor Department reported that initial unemployment claims came in better than forecast, falling 12,000 to 453,000 in the week ended Sept. 25, less than the 460,000 expected.

Statistics Canada said Thursday that gross domestic product fell 0.1% in July, the first decrease since August 2009.

Early on in the day, Ireland announced bank bailout costs of about €35 billion, while the market absorbed that Spain's credit rating was downgraded one notch to AA+ by Moody's Investors Service on Wednesday. In addition, Japan's industrial production fell 0.3% in August.

Canadian bonds and U.S. Treasuries fell on Wednesday after comments from Federal Reserve policy makers gave mixed chances for another round of bond purchases to stimulate the economy.

Andrea Heisinger contributed to this review

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