Ontario reopens bonds 6.5 bps tighter; provincial spreads firm; Canada Mortgage deal eyed

By Cristal Cody

Prospect News, Feb. 4 - In the lone deal in the Canadian bond primary market on Friday, the Province of Ontario reopened its 4.65% bonds due June 2, 2041 to tighter spreads after a previous reopening of the issue a week ago.

"They reopened that long deal last Friday at 80.5 [basis points], about 6.5 [bps] wider from where it came today," a source said, calling it "pretty impressive spread tightening."

The deal was well received, while provincial bond spreads tightened further on Friday.

Spreads are a half a basis point tighter on the day, the source said. On the week, spreads have "grinded in," with fives in by 4.5 bps and 10s and long bonds in by 6 bps to 6.5 bps.

Quite a few provincial issuers came to the market over the week, including New Brunswick, Quebec and British Columbia.

The Province of British Columbia's 4.3% bonds due June 18, 2042, which were reopened on Wednesday, traded 4 bps to 5 bps tighter on Friday, a source said.

British Columbia (Aaa/AAA/DBRS: AA) priced C$500 million in the reopening at a spread of 71 bps over the Government of Canada benchmark.

Coming up in new supply, the market's focus will be on the Canada Mortgage and Housing Corp.'s quarterly bond sale, a source said.

The offering is expected to be two tranches of more than C$2 billion of 10-year fixed-rate notes and five-year floating-rate notes, with pricing on Thursday.

Canada's government bonds fell on stronger jobs data on Friday. The 10-year bond yield rose to 3.459% from 3.43%. The two-year note yield closed up at 1.836% compared to 1.78%.

"Yields pushed out a good 5 to 7 basis points across the curve," a source said. "The curve is flattening on the long end. There was strong job data in Canada, adding to the pressure."

Statistics Canada said that employment rose by 69,000 in January, much stronger than the 16,000 that had been predicted. The unemployment rate rose 0.2% to 7.8%.

U.S. Treasuries ended the week down with yields higher by more than 30 bps across the mid to longer end of the curve. The 10-year Treasury note yield rose to 3.63% on Friday from 3.55%. The two-year note yield rose 4 bps to 0.74%.

The Labor Department said 36,000 jobs were added in January, a steep dip from the 140,000 that had been forecast. The drop was attributed to the severe snowstorms affecting the United States in January. The Labor Department also said the unemployment rate fell to 9% from 9.4% in December.

Ontario reopens 2041 bonds

The Province of Ontario (Aa1/AA-/DBRS: AA) priced C$600 million in a reopening of its 4.65% bonds due June 2, 2041 at 101.597 to yield 4.552%.

"There was debate on whether to do C$750 million or C$600 million because there was very good demand on 10s and longs on the week," a source said.

The bonds priced at a spread of 74 bps over the Government of Canada benchmark.

BMO Capital Markets Corp. was the lead manager.

Ontario reopened the issue on Jan. 28 to sell C$600 million at a spread of 80.5 bps over the Canadian government benchmark and on Jan. 19 to sell C$600 million at a spread of 84.5 bps over. The issue now has a total outstanding of C$5.55 billion.

Ontario has about C$1 billion left in its debt borrowing schedule and talk is that the province intends to sell five-year notes soon.

"We could see them come a couple more times before March 31," a source said.

OPTI debt strengthens

A trader said OPTI Canada Inc. "remained a topical name, but it wasn't quite as active today" as it had been earlier in the week.

Still, the bonds continued to gain ground, as the trader said the 7 7/8% and 8¼% notes due 2014 were trading at 54 bid, 55 offered.

Another trader said OPTI bonds were "all up again," quoting that same market of 54 bid, 55 offered for the subordinated issues. He also saw the 9¾% notes due 2013 at 98 bid, 99 offered and the 9% notes due 2012 at 99¼ bid, 99¾ offered.

The bonds had been falling dramatically since Tuesday, when the Calgary, Alta.-based oil sands producer said it had added Lazard Freres & Co. LLC to its cache of financial advisers.

The company had previously hired Scotia Waterous Inc. and TD Securities Inc. in November 2009.

Stephanie N. Rotondo contributed to this review

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