Toronto, Canada Mortgage and Housing deals in works; provincial bonds firm; OPTI drops

By Cristal Cody

Prospect News, May 5 - The Canadian bond markets stayed quiet on Thursday amid a lack of new deals and amid mostly flat secondary trading, according to informed bond sources.

"It's pretty much unchanged on the day," one bond source said.

In the provincial bond market, the Province of Ontario's 10-year and 30-year U.S. dollar-denominated bonds that priced Tuesday traded about 0.5 basis point wider on Thursday, a source said.

"Last week, we saw spreads widen 2 bps in 10s and 3 to 3.5 [bps] in longs," the provincial bond source said. "The last couple of days, spreads have come in a little bit."

In new deals ahead, the City of Toronto is expected to be in the market in mid-May with an offering pegged at C$200 million to C$300 million, in line with the city's past bond offerings, the source said.

"Toronto is looking to do a deal in the long end," the source said. "They have about C$700 million to do this year."

Since Ontario came with the $3 billion offering of 2.3% five-year global notes in the U.S. market on Tuesday, traders expect the province to issue less domestically.

"They may take a break from issuing. They could look at the long end domestically," the source said.

In other primary activity, a deal in mortgage bonds is expected from the Canada Mortgage and Housing Corp. the week of May 16. The offering includes a five-year floating-rate note and 10-year fixed-rate note, a bond source said. No price guidance was available yet.

In the secondary market, OPTI Canada Inc.'s bonds experienced losses for the day. OPTI had previously been holding steady for the past few sessions. Nortel Networks Corp., however, finished the day unchanged, though news reports indicated that an auction for the company's patents could bring in up to - or more than - $1 billion.

Canadian government bonds rallied but underperformed U.S. Treasuries.

"Both have a flight-to-quality bid," a source said. "Weakness in European equities on the back of soft earnings out of a couple of banks flowed into our market. Initial claims, which were weak, furthered the bid. Canada 10-year yields are in a couple."

Canada's 10-year bond yield fell to 3.185% from 3.2%. The 30-year bond yield fell to 3.565% from 3.59%.

Treasuries rallied, sending yields down 6 bps to 7 bps on the long end of the curve, on a gain in weekly unemployment claims.

"Treasuries have rallied quite a bit since morning," a source said. "Ten-year Treasury yields are in about 6 bps."

The 10-year note yield ended the day down 7 bps to 3.15%. The 30-year bond yield fell 6 bps to 4.26%.

Initial jobless claims rose 43,000, or 10%, to 474,000 in the previous week - an eight-month high, the Labor Department reported.

The Labor Department releases monthly employment figures on Friday.

Bonds stayed up after the Federal Reserve purchased $1.934 billion of Treasuries due 2028 through 2041. The bond buyback program is scheduled to run through June.

OPTI faces late-day loss

Late in the day, OPTI Canada's debt began to get hit, according to traders.

"There wasn't a lot of trading, but it was definitely quoted lower," a trader said, pegging the 7.875% and 8.25% subordinated notes due 2014 at 51½ bid, 52½ offered.

He said that was down a point from the day before.

Another trader said the 8¼% notes were trading in a range of 52 to 53, while the 7.875% notes were at 51 bid, 51¾ offered.

"That's a little lower than it should be versus the 8.25% notes," the trader said. "They were [both] probably down a point."

There hasn't been any fresh news out on the Calgary, Alta.-based oil-sands producer since last week, when the company reported a narrower first-quarter loss. However, the company also warned that it would likely not meet its 2011 production target of 38,000 to 45,000 barrels per day.

OPTI averaged 25,500 barrels per day in the first quarter, a 36% increase year over year.

Nortel unchanged

Nortel Networks' notes were unchanged on the day despite talk that an auction for the bankrupt company's patent portfolio could garner bids up to $1 billion or more.

A trader said the 10.75% notes due 2016 were unchanged at 90¾ bid, 91 3/8 offered.

Google Inc. has already submitted a $900 million bid for the patents. RPX Corp. and Research In Motion Ltd. are reported to be considering throwing their hats in the ring as well.

The Toronto-based telecommunications company filed for bankruptcy in January 2009.

Catalyst weakens

Separately, a trader saw Catalyst Paper Corp.'s 7.375% notes due 2014 "a little weaker at 66½ bid, 68 offered, down 1 point on "decent activity" but no news out about the Richmond, B.C.-based paper manufacturer.

Paul Deckelman and Stephanie N. Rotondo contributed to this review

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