Quiet day on Bank of Canada forecast; banks flat, Lower Mattagami Energy trades tighter

By Cristal Cody

Prospect News, April 17 - Canadian issuers stayed to the sidelines on Tuesday after the Bank of Canada's stronger economic forecast.

"Slow day," one bond source said.

An offering from BAA Airports Ltd. is expected this week depending on market tone following the conclusion of the company's roadshow held Monday and Tuesday in Toronto and Montreal, a source said.

Bank of America Merrill Lynch, CIBC World Markets Inc. and RBC Capital Markets Corp. are the managers.

London-based BAA owns airports that include Heathrow, Glasgow and Edinburgh airports.

Lower Mattagami Energy LP's 40-year bonds sold the previous day stayed about 2 basis points tighter in secondary trading.

"It tightened by about 2 [bps] yesterday shortly after pricing," a source said. "Today, spreads are generally tighter."

The Markit CDX Series 18 North American investment-grade index firmed 2 bps to a spread of 99 bps.

Bank and financial paper was mostly flat in trading.

Royal Bank of Canada's 1.45% notes due 2014 eased 1 bp.

The Bank of Canada left the 1% overnight interest rate unchanged but signaled that it may hike rates because of stronger growth. The bank projects that the economy will grow by 2.4% in 2012 and 2013 before moderating to 2.2% in 2014.

Government bonds traded lower on the better economic forecast.

"Interest rates came up a lot on the back of that," a source said. "Longs were up by 3 [bps] and twos went out by 9 basis points. Much higher than the U.S., where there is barely any movement."

Canada's two-year note yield jumped 9 bps on the day to 1.32%. The 10-year note yield rose 5 bps to 2.07%.

Lower Mattagami Energy firmer

Lower Mattagami Energy's 4.175% senior secured bonds due 2052 traded at 158 bps bid, 155 bps offered in Canada's secondary bond market, a source said on Tuesday.

"That deal went well," the source said.

Lower Mattagami Energy sold C$225 million of the 40-year bonds (A2//DBRS: A) at a spread of 160.1 bps over the Government of Canada benchmark on Monday.

The company operates hydroelectric generators on the Mattagami River and is a partnership of Ontario Power Generation Inc. and LM Energy Inc.

RBC flat

Royal Bank of Canada's 1.45% notes due 2014 (Aa1/AA-/AA) traded about 1 bp wider to 61 bps over Treasuries on Tuesday, a source said.

Royal Bank of Canada sold $1.25 billion of the senior notes on Oct. 26, 2011 at a spread of Treasuries plus 105 bps.

The financial services company is based in Toronto.

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