High-grade bonds stay tight; high-yield names mixed; government bonds slip after jobs data

By Rebecca Melvin

New York, Nov. 5 - Canada's investment-grade corporate bond market remained tight on Friday despite a slip in government bonds related to strong jobs data that was released in both Canada and the United States.

High-yield corporate bonds were mixed, with Livingston International Inc.'s new 10.125% senior notes due 2015 firm at 102.5 and Gateway Casinos & Entertainment Ltd.'s 8.875% second-priority senior notes due 2017 steady at 103.5, after having jumped 3.5 points on their issue Thursday.

But Armtec Holdings Ltd.'s 8.875% senior unsecured notes due 2017 slipped a bit Friday to 103.25 from 104 on continued softness related to the company's uninspiring quarterly earnings report. And Superior was also down to 103.25 bid early Friday, also on weak earnings and lowered 2011 guidance, said Adam Mitchell of Scotia Capital's high-yield sales and trading.

Mitchell said in commentary Thursday that he thinks the Superior bond is cheap in the context of the market, with strong operating cash flow that means the company can de-lever quickly if needed.

Back in the higher grade market, Halifax International Airport's new C$135 million issue of 4.888% bonds due 2050 were another notable deal for the week. The new paper got taken up pretty quickly when it priced Tuesday and was put away, a market source said.

"It didn't really come out for secondary action," the source said. But overall, "the markets are in a good spot; everything is tighter."

In the coming week a number of roadshows will be underway, but any new issues that price are expected early in the week on Monday or Tuesday because of the holiday shortened week.

Bond markets in Canada will be closing early on Wednesday and shut on Thursday for Remembrance Day.

Government bonds slip

Canada's 10-year note yield edged up to 2.84% from 2.81% on Thursday; and the five-year note yield pushed up to 2.05%.

Government bonds slipped Friday from highs spurred by the U.S. Federal Open Market Committee's news on Wednesday that it is initiating a second round of quantitative easing in an effort to spark economic growth.

For the week, the curve steepened because the Fed said it plans to make most of the purchases in the middle of the curve, the manager said.

On a bout of selling Friday due to the jobs data, the Canadian government market did better than U.S. government bonds, a Toronto-based portfolio manager said.

Even in the equities markets, Canadian stocks did better than the U.S. indices. "Our market is still up a little; we didn't react as strongly, and things are holding up quite a bit," a sellside bond source concurred.

"There's still a fair amount of cash sloshing around on the Street, and investors are looking at product. There were not a lot of profit-takers today because of the dearth of product," the sellsider said.

Statistics Canada said Friday that employment for October remained virtually unchanged for the second consecutive month, as full-time gains offset part-time losses. The unemployment rate edged down to 7.9% and has been around 8% for the past seven months.

U.S. Treasuries sold off Friday on better-than-expected jobs data as well.

The U.S. Department of Labor said Friday that for October, nonfarm payroll employment increased by 151,000 jobs, with 159,000 jobs added in the private sector. The unemployment rate remained unchanged at 9.6%.

The yield on the 10-year Treasury note rose to 2.52%, which was up 3 basis points. The yield on the five-year notes rose to 1.09%, up 6 bps.

The 30-year notes were affected the most, dropping by more than a point during the session amid expectations that the Fed isn't going to focus purchases on the back end, or long maturities. And going forward the longer end is doing to be different from the intermediate.

Corporates have strong week

The strong rally in the market Thursday helped performance, but there was not a lot of new issuance in investment grade. On Friday, desposit notes were in a few basis points, and in bank subordinated debt, the newer vintage notes saw compression on spreads versus the older notes.

Investors are still digesting about $5 billion in new issuance that priced in October, and they have cash to put to work, sources said.

High-yield names saw positive pricings for Toronto-based Livingston despite it being an unrated, fairly small bond deal that was privately distributed. Livingston provides customs brokerage, transportation and logistics services. It priced C$135 million of senior notes on Monday at par, on the tight side of pre-deal market price talk.

Gateway, a British Columbia-based gaming company saw its paper rise on pricing to as high as 104 before settling back to about 103.5. The paper priced at the cheap end of coupon talk; and proceeds from the issue, along with cash on hand, are earmarked to fund the tender for the company's 9.25% senior notes due 2013.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.