Primary volume quiet, dealers wait for mortgage bond sale; OPTI Canada bond activity thins

By Cristal Cody

Prospect News, Feb. 7 - Canadian bond markets were quiet on Monday as corporate earnings releases get underway and traders look to the week's main supply, a C$2 billion-plus two-tranche offering from Canada Mortgage and Housing Corp.

The quarterly bond sale is expected to include 10-year fixed-rate notes and five-year floating-rate notes that will price on Thursday, a source said.

Looking down the road, the Province of Ontario continues to be a "possibility" for more deals, with about C$1 billion left before the fiscal year end on March 31, according to a source.

"Nova Scotia has one deal left to do, around C$250 [million], but they have a couple of months to wait and be an opportunistic issuer," the source said.

In economic news, Statistics Canada said building permits rose 2.4% to $5.7 billion in December, mostly in line with expectations.

Canadian government bonds were choppy in trading Monday afternoon. The 10-year bond yield fell to 3.422% from 3.459%. The two-year bond yield fell to 1.834% from 1.836% on Friday.

"It was a struggle to find direction," a source said. "The data front is pretty quiet. The focus is on supply this week."

The Bank of Canada will auction C$3.2 billion of 2% notes due 2014 on Wednesday.

The Treasury Department will auction $72 billion of debt over the week, including $32 billion of three-year notes on Tuesday, $24 billion of 10-year notes on Wednesday and $16 billion of 30-year bonds on Thursday.

"The three-year is a pretty well-received location of the curve. The key is the 30-year on Thursday," a source said.

Treasuries regained some losses to end Monday mostly flat, with the long end of the curve rallying. The 30-year bond yield fell 3 basis points to 4.7%. The two-year note yield rose 2 bps to 0.76%, while the 10-year Treasury note yield was flat at 3.63%.

"Today is a continuation of last week," a source said. "In the afternoon, we got a little back but momentum has definitely slowed down. We think the sell-off is slightly overdone."

OPTI settling in

OPTI Canada Inc.'s bonds did not trade as actively as they did the previous week, after the company announced it had hired Lazard Freres & Co. LLC as a financial adviser.

However, a trader remarked that the senior notes were the ones getting the most attention during Monday's session.

"OPTI seniors flew," he said, seeing the 9% notes due 2012 at 99¾ bid, par ¾ offered and the 9¾% notes due 2013 at 97½ bid, 98½ offered.

And while last week saw "hundreds of millions" of the subordinated issues changing hands, Monday saw just $10 million of the 7 7/8% and 8¼% notes due 2014 turning over, according to the trader.

He called the subordinated paper unchanged to fractionally lower at 53 bid, 54 offered.

"I think it's kind of settled in," he said.

Another trader deemed the bonds generally unchanged but said the 8¼% notes "might be down a little bit" at 53¼ bid, 54¼ offered "but not very active."

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

Stephanie N. Rotondo contributed to this review

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