Markets quiet on short day; pipeline builds up; maple, junk deals forecast; Teck firms

By Cristal Cody

Prospect News, Feb. 17 - Bond markets stayed quiet in Canada and the United States on Friday ahead of the long holiday weekend.

In Canada, the financial markets had an early close, keeping activity even more light, sources said.

"It's a short day. Very quiet, but we expect next week to be busy again," a bond source said. "It really depends on market tone, but we are expecting supply next week if market tone holds."

Additional details from BP Capital Markets plc's C$500 million issue of 2.774% five-year notes emerged on Friday. The company brought the year's second maple deal, where foreign issuers sell bonds in Canada, following the C$500 million sale of 2.2% five-year notes from International Business Machines Corp. (Aa3/A+A+) on Feb. 3.

"It's very interesting to see a non-financial corporate maple coming to market," a bond source said. "When the IBM deal happened, it was the first time a corporate maple deal came to the market since June of last year."

Looking ahead, "decent activity" in new maple bond deals and the high-yield market is expected, a source said on Friday.

"We have a very robust calendar of roadshows coming up in February and March," the bond source said.

About 15 roadshows for various issuers are scheduled through spring, the source said.

While some are non-deal roadshows, "we can expect activity on the back of those roadshows," the source said. "So we do see a pipeline building up."

Corporate bonds overall were flat on Friday. The Markit CDX Series 17 North American high-grade index ended unchanged at a spread of 99 basis points.

Teck Resources Ltd.'s bonds sold in the U.S. market on Thursday traded better, with the seven-year notes seen about 4 bps better on Friday.

Canadian high-yield bonds spreads were better by about 3 bps to 5 bps on the week, a trader said.

Perpetual Energy Inc.'s 8¾% high-yield notes due 2018 traded in the low 80s, a trader said on Friday. Standard & Poor's revised the company's outlook on Tuesday to negative from stable.

Government bonds were mostly flat on the short market day. Canada's 10-year note yield ended unchanged at 2.04%. The 30-year bond yield rose 1 bp to 2.63%.

BP sells maple bonds

BP Capital Markets (A2/A/) priced C$500 million of 2.774% five-year notes at par to yield 130 bps over the Canadian bond curve, a source said on Friday.

Scotia Capital Inc., HSBC Capital (Canada) Inc. and TD Securities Inc. were the lead managers.

The notes are guaranteed by energy company BP plc.

England-based BP Capital Markets is a funding arm of the energy company.

Teck's short paper tightens

Both tranches that Teck Resources sold in a $1 billion offering of senior notes (Baa2/BBB) in the U.S. investment-grade market on Thursday traded better on Friday, with the shorter-dated notes tighter, a trader said.

The 3% notes due 2019 firmed to 161 bps bid, 156 bps offered. The company sold the tranche in a $500 million offering at 165 bps over Treasures.

Teck's 30-year bonds edged tighter to 207 bps bid, 202 bps offered. The bonds priced at a spread of 210 bps over Treasuries.

The diversified mining company is based in Vancouver, B.C.

Perpetual Energy lower

In Canada's secondary market, Perpetual Energy's 8¾% senior notes due 2018 (B3/B-/) were quoted on Friday at 85.25 bid, according to a trader.

The company sold C$150 million of the notes on March 10, 2011 at par.

S&P said in its outlook change on Tuesday that depressed natural gas prices will continue to negatively affect Perpetual Energy's operating cash flow.

The oil and gas company is based in Calgary, Alta.

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