Canada Housing, Nova Scotia Bank, BAC Canada, Quebec lift new deal activity; spreads firm

By Cristal Cody

Prospect News, Feb. 16 - The Canadian bond markets were busy Wednesday with deals in the corporate, mortgage and provincial markets.

Canada Housing Trust, a unit of Canada Mortgage and Housing Corp., sold C$5 billion in two tranches of notes (Aaa/AAA/DBRS: AAA) on Wednesday in a "steady as she goes" deal, a source said.

The next Canada Mortgage Bond sale is expected in mid-March.

"We expect a five-year fixed-rate mortgage bond then," a source said.

In two other deals offered on Wednesday, Bank of Nova Scotia sold C$1.5 billion of five-year notes and BAC Canada Finance Co. priced an upsized C$650 million of three-year floating-rate notes.

In the provincial market, the Province of Quebec (Aa2//AA-/DBRS: A) sold an additional C$500 million in a reopening of its 4.25% notes due Dec. 1, 2021 at 99.388 to yield 4.321% on Wednesday, sources said.

Spreads in the overall market were tighter on the day, a source said.

In the secondary markets, Bank of Nova Scotia's notes traded about 2 basis points tighter, while the bonds from Quebec and Canada Housing Trust traded around the issue price, a source said.

Canadian government bonds fell, tracking U.S. Treasuries. The 10-year bond yield rose to 3.503% from 3.48%. The two-year note yield climbed to 1.939% from 1.92%.

Statistics Canada said that foreigners purchased C$9.6 billion of Canadian debt and equity in December, led by Canadian bonds.

"Canadian corporate bonds drew most of the foreign investment in December, with $2.3 billion of private corporate bonds and $863 million of federal government enterprise bonds. This activity was mainly comprised of acquisitions of new bond issues."

In other economic data, Canada's leading indicators rose 0.3% in January and manufacturing sales rose 0.4% in December, Statistics Canada said in separate reports.

U.S. Treasuries ended the day slightly lower, sending the 10-year note yield up 2 bps to 3.62%. The two-year note yield rose 1 bp to 0.835%.

The Federal Reserve released minutes from its January policy meeting, which showed an upbeat attitude on economic conditions going forward. The Federal Open Market Committee raised its economic growth outlook to a range of 3% to 3.9%.

The Labor Department said the January producer price index came in on forecast at 0.8%, while the core rate came in at 0.5%, higher than the 0.2% forecast.

Canada Housing Trust prices

Canada Housing Trust sold C$5 billion in two tranches of notes (Aaa/AAA/DBRS: AAA) on Wednesday, sources said.

The first tranche was C$2.5 billion of 3.8% Canada Mortgage Bonds due June 15, 2021 priced at 99.591 to yield 3.849%, or a spread of 28 bps over the Government of Canada benchmark. The notes were talked at 27.5 bps to 28 bps.

The 10-year note came in at the top of expectations, a source said.

"It was well spoken for - 25% was sold outside of Canada," the source said.

The second tranche was a C$2.5 billion reopening of the floating-rate notes due March 15, 2016, which priced at 100.2 with a coupon of three-month CDOR plus 12 bps. The sale of the floating-rate notes was upsized to C$2.5 billion. "Demand on that was just shy of C$3 billion," the source said. About 95% of the notes were sold domestically.

The total outstanding for the floating-rate note issue is C$4.5 billion.

BMO Capital Markets Corp. was the lead manager of the sales.

In the secondary market, "the spreads on both tranches is bid at its issue as we go out on the day," a source said.

Canada Mortgage and Housing offers financing, mortgage loan insurance, mortgage-backed securities and other programs.

Bank of Nova Scotia prices

The Bank of Nova Scotia sold C$1.5 billion of 3.61% deposit notes dues Feb. 22, 2016 at 99.986 to yield 3.613% on Wednesday, a source said.

The notes priced at a spread of 77 bps over the Canada bond curve.

"We saw them coming at a 5 basis point concession," a source said. "In the end, they priced at the tight end of guidance at 71 [bps] over the curve."

Scotia Capital Inc. was the manager.

The Bank of Nova Scotia notes were seen a "couple basis points tighter" in the secondary market, a source said.

The notes were quoted trading at 79 bps bid, 77 bps offered.

Toronto-based Bank of Nova Scotia provides financial services in Canada and across the globe.

BAC Canada sells floaters

BAC Canada Finance, formerly known as Merrill Lynch Canada Finance, sold an upsized C$650 million of floating-rate notes due Feb. 21, 2014 at par on Wednesday, a source said.

The deal was upsized from C$250 million and priced at a spread of 143 bps over the quarterly CDOR. Initial guidance on the notes was 145 bps.

Bank of America Merrill Lynch was the lead manager.

BAC Canada Finance is a subsidiary of Bank of America Corp.

Quebec reopens 4.25% 10-years

The Province of Quebec (Aa2//AA-/DBRS: A) sold an additional C$500 million in a reopening of its 4.25% notes due Dec. 1, 2021 at 99.388 to yield 4.321% on Wednesday, sources said.

The notes priced at a spread of 73 bps over the Government of Canada benchmark.

National Bank Financial Inc. was the lead manager.

This was the third time Quebec has reopened the issue so far this month. The province sold C$500 million of the notes on Feb. 8 at a 73 bps spread and C$500 million of the notes on Feb. 3 at a 75.5 bps spread.

Quebec's notes were seen wrapped around the issue price at 73 bps bid, a source said.

"They last reopened that issue about a week ago. It's been very steady," the source said.

The issue now has a total outstanding of C$1.5 billion.

OPTI bonds higher

OPTI Canada Inc.'s debt continued to see "much less action" than it had the week before, according to a trader.

Still, he saw the 7 7/8% and 8¼% notes due 2014 moving up to 48 bid, 49 offered from opening levels of 47 bid, 48 offered.

Another trader called the bonds a point better at 481/2.

Another source said that OPTI's 7 7/8% senior secured second-lien notes and 8¼% senior unsecured notes, both due 2014, "seem to have stabilized" in a bid range around 47 to 48, with "a good amount of trading in that."

He saw the bonds starting off unchanged and staying around there for much of the day, but by the end of the day, they were closer to 48-481/2, which he said was up half a point to a full point, on "good volume."

Another trader saw OPTI's bonds up by perhaps a point, quoting them at 48½ bid.

A market source at another desk pegged the 7 7/8s up 1¼ points on the day at 48¼ bid.

There was no fresh news out on the troubled Calgary, Alta.-based energy company, whose joint venture with Nexen Inc., owned 35% by OPTI and 65% by Nexen, has had trouble reaching its production targets for extracting bitumen from the oil sands there and converting the gooey, viscous crude grade into commercially viable light, sweet crude oil.

Paul Deckelman and Stephanie N. Rotondo contributed to this review

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