Primary market dries up ahead of holidays; OPTI Canada bonds gain; Canadian bonds rally

By Cristal Cody

Prospect News, Dec. 17 - Canadian bond markets ended Friday on a quiet note after several deals - culminating with Canada Housing Trust's C$6 billion of 2.75% five-year mortgage bonds - priced over the week.

No new issuance is expected in the week ahead of the holidays and as the year winds to a close.

"The markets are still open and they'll probably be operating at half speed next week and even slower than that in the final week of the year," a source said. "Typically, it's not an ideal time to be doing issuance."

Elsewhere in trading, OPTI Canada's bonds made a turnaround on Friday after declining the past week, traders said.

Meanwhile, Canadian government bonds ended the day higher, tracking U.S. Treasuries. The two-year note yield fell to 1.642% from 1.68%.

"It really seems like the fever in bond yields has broken, led by a huge rally in the long end of Treasuries," said Douglas Porter, BMO Capital Markets' deputy chief economist. "We saw Canadian bond yields come down across the board, especially at the long end."

The yields on Canada's 10-year and 30-year bonds are both down nearly 10 basis points from Thursday.

"We've had quite a nice rally in the last couple of days and that's reversed a good portion of the backup that we had seen earlier this month," Porter said.

Treasuries rallied also on the long end of the curve as buyers emerged.

The 10-year Treasury note yield fell to 3.33% from 3.42%. The yield on the two-year note fell 3 bps to 0.61%. The 30-year bond yield fell to 4.44% from 4.53%.

OPTI regains ground

After declining steadily in the last week or so, OPTI Canada's bonds gained ground in Friday trading.

One trader opined that the gains were because "people are paying more attention to it and there are lots of different opinions" as to how the company will fare going forward.

He saw about $20 million of the 8¼% notes due 2014 change hands around 66. The 9% first-lien notes due 2012 meantime traded up to 99½ from 98½ previously.

"Those never should have gotten so low," he said of the first-lien paper, as that particular issue would be more than covered in the event of a bankruptcy.

Another trader called the bonds a point higher, the 8¼% notes around 66 and the 7 7/8% notes due 2014 around 661/4.

OPTI Canada is a Calgary, Alta.-based oil sands producer.

Stephanie N. Rotondo contributed to this review

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