Market tone stabilizes; Ontario prices C$750 million add-on; corporate bonds firm

By Cristal Cody

Prospect News, Sept. 26 - A stabilized market tone helped Canadian stocks and corporate bonds improve on Monday, sources said.

The tone was stable enough early in the day that the Province of Ontario sold C$750 million in an add-on to its 4% 10-year benchmark notes, a bond source said.

"You don't often see Monday deals, but market tone was opening decently with European equities up on the day on the back of some optimism from the situation in Europe and Greece," the source said.

On Friday, the Province of Quebec brought a surprise offering of C$500 million in a reopening of the 4.25% benchmark notes due Dec. 1, 2021.

Primary activity for the week is "really just tone-dependent," a bond source said. "There's definitely pent-up supply out there. We need to see a couple days of stability like today. If tomorrow opens up stable again, we could see more issuance."

One potential issuer includes Manitoba Telecom Services Inc., which has a C$220 million maturity due on Tuesday, a source said.

"They had a roadshow last week in Montreal and Toronto. They do have a maturity coming up this week, but they are tone-dependent," the source said. "They're definitely not in a rush to do anything."

The Winnipeg, Man.-based telecommunications company said on Aug. 23 that operating subsidiary MTS Allstream Inc. established a C$500 million medium-term note program to issue bonds over the next 25 months, in part to refinance debt as it becomes due.

In other bond activity, Bank of Montreal opened its power and utilities investor Western Canada conference in Vancouver, B.C., and Calgary, Alta., on Monday. The conference runs through Thursday and includes 20 of the largest oil and gas infrastructure institutional investors.

Closing out the day, provincial spreads were mostly unchanged except for weakness in the long end on Monday, a source said.

Corporate spreads closed "3 to 4 [basis points] tighter," the source said.

The Markit CDX Series 17 North American high-grade index firmed 4 bps to a spread of 137 bps on Monday.

Government paper lower

Government bonds ended lower as stocks gained after European officials promised to resolve the overseas debt situation that has plagued the markets. Canada's 10-year note yield was 6 bps higher at 2.14%. The 30-year bond yield rose to 2.77% from 2.71% on Friday.

"Even though there was nothing concrete announced over the weekend from the G20 meeting, some decent European economic data helped give investors more confidence in equities after the violent sell-off last week," a bond source said. "The move into equities has come at the expense of bonds."

The week's major Canadian economic data will be July's gross domestic product report on Friday.

"We've seen a pretty good flow of economic data for that month, so it shouldn't be the worst outcome," a source said. "It should still be consistent for a fairly subdued quarter."

Ontario sells C$750 million

In the day's lone new deal, the Province of Ontario (Aa1/AA-/DBRS: AA) sold C$750 million in an add-on to its 4% 10-year benchmark notes at 107.791 to yield 3.063% on Monday, a bond source said.

The notes due June 2, 2021 priced at a spread of 95 bps over the Government of Canada benchmark.

National Bank Financial Inc. was the lead manager.

The issue was previously reopened on Sept. 1 in a C$750 million add-on priced at 105.409 to yield 3.344%, or a spread of 89 bps over the Canadian government benchmark.

The issue has a total of C$8.25 billion outstanding.

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