Primary slows during short market week; Anergy Capital trades weaker, Fairfax stronger

By Cristal Cody

Prospect News, April 18 - Activity in the Canadian bond market got off to a slow start Monday with no reported new deals amid pre-holiday trading, sources said.

Last week, a few non-syndicated deals were done for specific investor demand but were not publicly disseminated, an informed source. Some of those deals included the Province of Alberta, which printed C$30 million of notes due 2026, the source said.

"It's been fairly quiet other than those types of issues," the source said.

The market has a short week and will be closed for Good Friday. The U.S. markets also close early on Thursday.

In corporate bond trading, Anergy Capital Inc.'s 10.125% notes due 2015 (B2/B+) were weaker, while Fairfax Financial Holdings Ltd.'s 7.5% notes due 2019 traded up, an informed bond source said.

Canada's government bonds rallied on Monday after Standard & Poor's put the United States' credit rating on negative outlook based on rising budget deficits and debt.

"Bonds in Canada have done quite well," said Roger Quick, director of fixed-income research at Scotia Capital.

"We benefited a bit from the warning from S&P, and bonds were already stronger with concerns about Europe, Greece in particular. With concerns about the U.S. as well, we've outperformed," he said.

The rally sent Canada's 10-year bond yield down about 8 basis points to 3.22% before ending the day down 6 bps at 3.24%. The 30-year bond yield fell 5 bps to 3.68%.

"It could go a bit further," Quick said. "The concerns about the U.S. are somewhat positive for margin."

Treasuries rose on Monday, sending yields down across the curve, as bonds recovered from the S&P report on overseas debt concerns in Europe and Greece. The benchmark 10-year Treasury note yield fell 4 bps to 3.37%, while the 30-year bond yield fell 2 bps to 4.45%.

S&P gave a negative outlook on Monday to the U.S. AAA credit rating based on growing budget deficits and debt. The Treasury Department has estimated the government may not be able to avoid default by as early as July.

Bondholders remain concerned due to the potential Treasury payment default, BMO Capital Markets Corp. strategists said in a research report on Monday.

"This was evidenced today as S&P revised its outlook on the U.S. long-term rating to negative, as even a day or two of payment disruptions could carry lasting impacts on U.S. financial markets via increased borrowing cost and negative impacts on the dollar," the strategists said.

Non-residents buy fewer bonds

The markets also digested data that showed non-resident purchases of Canadian securities fell to C$2.5 billion in February, including the sale of C$1.6 billion in Canadian bonds, the first divestment since December 2008.

"The divestment in February was mainly in federal government bonds as non-residents sold C$5 billion on the secondary market, focusing on shorter term-to-maturity bonds," Statistics Canada said in the release. "Foreign holdings of provincial government bonds were also reduced, mainly through retirements, as new issue activity was subdued in the month."

Foreign acquisitions of Canadian corporate bonds helped offset the market, as non-residents added C$3.6 billion of federal government enterprises bonds.

"Bonds issued by private corporations also attracted foreign inflows, largely the result of secondary market acquisitions of mortgage-backed securities," the agency said.

Some divestment of U.S. corporate bonds also was seen, with the focus on retirements of Maple bonds.

Canadian investment in foreign securities grew to C$2.6 billion in February on growth in purchases of U.S. government bonds.

Anergy Capital falls

In corporate bond trading, Anergy Capital's 10.125% notes due 2015 (B2/B+) dropped to 105.75 bid, 106.75 offered on Monday from 106.50 bid, 107.50 offered on Friday, an informed source said.

Anergy Capital is a Vancouver, B.C.-based capital pool company.

Fairfax Financial stronger

Fairfax Financial's 7.5% notes due 2019 traded up at 109 bid, 110 offered from 108.75 bid, 109.75 offered on Friday, a bond source said.

Fairfax Financial Holdings is a Toronto-based financial services holding company involved in property and casualty insurance and reinsurance and investment management.

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