Canadian corporate bonds firm; Industrial Alliance, Canadian Pacific Railway come in

By Cristal Cody

Prospect News, Jan. 3 - Canadian corporate bonds traded better and government bonds fell in the first session of the new year on thin volume, sources said Tuesday.

"We're still not quite full in terms of people on the desk and volume's still a little bit on the small side, but the overarching move is a little bit more optimism to start the year," one bond source said.

Corporate bonds were stronger and the Markit CDX Series 17 North American investment-grade index ended the first session of the year at a spread of 118 basis points.

"Secondary volume seems to be a bit lighter than normal," a corporate bond source said. "Bonds are a bit better but not as well as you might have expected given the rally we've seen in equities, but it's on very light volume."

Industrial Alliance Insurance & Financial Services Inc.'s bonds are trading more than 50 bps tighter since the issue priced in December, a source said Tuesday.

Canadian Pacific Railway Co.'s notes also were seen trading better on Tuesday and about 25 bps better since they priced in late November.

The new issue market stayed quiet on Tuesday, and activity is expected to stay light for the rest of the week.

Key economic data comes at the end of the week with U.S. payroll numbers and Canadian labor force reports due on Friday.

"In Canada, we're looking for a rebound in hiring after a couple of off months," a bond source said.

Canadian government bonds traded lower along with U.S. Treasuries on Tuesday.

"We've seen risk assets do fairly well and as a consequence bond yields have also drifted higher," a source said.

Canada's 10-year note yield rose 2 bps to 1.99%. The 30-year bond yield ended up 6 bps to 2.55%.

Industrial Alliance comes in

In the secondary market, Industrial Alliance's 4.75% fixed-rate/floating-rate subordinated debentures due Dec. 14, 2021 were seen at 285 bps bid on Tuesday, a source said.

"That is a great improvement," the source said.

The company sold the debentures (/A/DBRS: A) on Dec. 7 in a C$200 million offering and then sold an additional C$50 million on Dec. 13 at a spread of 335 bps over the Government of Canada benchmark.

The life and health insurance company is based in Quebec City, Quebec.

Canadian Pacific firms

In other trading, Canadian Pacific Railway's 5.1% medium-term notes due Jan. 14, 2022 "started today at 265 [bps] bid," a source said on Tuesday.

The issue (DBRS: BBB) was sold in a C$125 million offering on Nov. 29 in the Canadian high-grade market at a spread of 290 bps over the Government of Canada benchmark.

The Calgary, Alta.-based railroad operator is a subsidiary of Canadian Pacific Railway Ltd.

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