Canadian markets quiet; new Pembina tightens amidst supply squeeze; Gateway Casinos improves

By Rebecca Melvin

New York, March 28 - The Canadian bond markets were little changed and very quiet on Monday in the absence of any news flow that hasn't already been discounted by the market, a Toronto-based fixed-income strategist said.

"It sort of fluctuated with the stock market and [is] not doing much of anything today," the strategist said of Canadian bonds.

"There's nothing new that the market hasn't already discounted; the campaign in Libya is ongoing and there's no information coming out of Japan. The markets are operating in a news vacuum and there's no catalyst for trading," he said.

In addition, portfolio managers were seen as being resistant to opening their books prior to month-end and before the U.S. monthly jobs report expected Friday.

"There's no need to stick your neck out in front of that," the strategist said, referring to the payrolls report.

The quiet tenor of Canadian bonds marked a change from last week, when a flurry of new issuance brought $3 billion of new paper.

Among investment-grade names, Pembina Pipeline Corp., which sold on Thursday an upsized C$250 million of 4.89% medium-term notes due 2021, saw that paper improve in trade on Monday, tightening by about 5 basis points on 161 bid, a Canadian sellside market source said.

The improvement was based on the fact there wasn't expected to be any more new paper, so existing issues will be better bid, but on lower volumes, the sellsider said.

Among high-yield bonds, there was some trading action in Gateway Casinos & Entertainment Ltd.'s 8.875% notes due 2017, which were about 0.5 point tighter at 106.

It was higher on the scarcity value, a Toronto-based sellside market source said of Gateway; and he predicted there would be no new high-yield issuance for about a month.

Forward calendar deals

No word was heard on new issue calendar items, including Arrow Lakes Power Corp. or Millar Western Forest Products Ltd.

Castlegar, B.C.-based hydroelectric power generator Arrow Lakes was expected to price C$350 million of senior bonds via CIBC World Markets Inc. and Scotia Capital Inc. this month.

Edmonton, Alta.-based lumber company Millar Western was expected to price $200 million of senior notes due 2021 in a Rule 144A and Regulation S offering via Goldman Sachs & Co., hSBC Capital (Canada) Inc. and KKR Capital Markets LLC this week.

Government bonds

Canadian government bonds were trendless for the most part on Monday, following equities and U.S. Treasuries without much conviction, but underperforming by the end of the session as most markets on either side of the U.S.-Canadian border succumbed to some selling pressure.

Canada's two-year bond yielded 1.749% Monday, up from 1.726% late Friday. The 10-year bond yielded 3.272%, up from 3.236%.

In the United States., the price of Treasury two-year notes fell after a sale of $35 billion of the notes at the highest yield in almost a year. This was amid concern the Federal Reserve may consider ending its quantitative easing program earlier than planned.

The yield on the current two-year notes rose to 0.75%. Yields on two-year notes rose 15 basis points last week on speculation the global economic recovery will withstand Japan's nuclear crisis, the Libyan civil war and Europe's sovereign-debt crisis.

Back in Canada, the bond market was also tracking developments in these troubled hot spots and gauging their effect on the U.S. economy.

The $64,000 question is whether the U.S. economy is doing better, and everybody's been trading on the assumption that it is, a Toronto-based sellsider said. But that assumption has been thrown into doubt now.

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