Primary calendar light for week; bond spreads weaker; Skylink Aviation's new bonds soften

By Cristal Cody

Prospect News, March 14 - Canadian bond spreads softened on Monday in quiet trading that is expected to stay quiet on a light primary calendar for the week.

The only anticipated deal is from Canada Housing Trust, a unit of Canada Mortgage and Housing Corp., which plans to sell C$6 billion to C$6.5 billion of new bonds due June 2016 talked with a spread in the area of 27 basis points, a source said.

The deal is expected to price early Thursday.

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

"Beyond that, there's not a whole lot going on," the source said. "The markets are going to take a little breather after last week, which was quite busy. We don't expect a whole lot of issuance this week."

The primary calendar is expected to stay light over the next week as many head out on spring break vacations.

In trading, provincial bond spreads widened half a basis point to 1 bp, while corporate bond spreads widened 1 bp, a source said.

"Spreads are a little weaker on the day," the source said. "I've definitely seen better selling across the board. There's little secondary trading to talk of."

High-yield trading mixed

In high-yield secondary trading, Skylink Aviation Inc.'s notes were weaker, while Perpetual Energy Inc.'s new bonds traded up, a source said.

The 12.25% notes due March 15, 2016 (/B/DBRS: B) traded Monday at 98.5 bid, 99.5 offered, compared to 99.5 bid, 100.5 offered on Thursday.

Skylink Aviation sold C$110 million 12.25% senior secured second-lien notes due March 15, 2016 at par on March 8.

The Toronto-based global charter company specializes in emergency airlifts and evacuations and logistical support for governments and corporations.

Perpetual Energy's new 8.75% bonds were quoted higher on Monday at 100.125 bid, 101.625 offered.

The Calgary, Alta.-based oil and gas company sold C$150 million of 8.75% senior notes due March 15, 2018 (B3/B-/) on Thursday at par.

Government bonds rally

Canadian government bonds outperformed U.S. Treasuries as investors sought bonds in a flight-to-quality bid in the wake of Japan's devastating earthquake and tsunami.

Canada's two-year note yield dropped 6 bps to 1.68%. The 10-year bond yield fell 4 bps to 3.24%.

U.S. Treasuries rallied Monday on the short end. The two-year note yield fell 5 bps to 0.59%. The 10-year benchmark Treasury note yield fell 4 bps to 3.36%.

Japan continued to struggle after the earthquake and tsunami on Friday that is estimated to have killed at least 10,000 people and caused damage to several nuclear reactors.

In addition, Middle East unrest continued and the euro debt crisis also came back to the forefront.

As one source said, "Pick your poison. There's a lot of uncertainty out there."

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