Bank of Canada holds Treasury auction; secondary market quiet; Quebecor, Sherritt firm

By Rebecca Melvin

New York, New York, Oct. 9 - Canadian bond markets were quiet on Tuesday on the back of the long holiday weekend for the Canadian Thanksgiving Day.

"There was no new issuance and limited secondary flows, so nothing major to report, except turkey," a syndicate source said.

The Bank of Canada priced C$13 billion of Government of Canada treasury bills in three series in an auction on Tuesday; but there was no meaningful follow through in other markets, sources said.

Yields were flat, they said.

In secondary market action, there was some trading in recent new issues, and pricing there was firm, a high-yield trader said.

Quebecor Media Inc.'s 6 5/8% Canadian notes, which priced last week, traded at 101.75 bid, 102.25 offered, the trader said.

The communications and media company sold C$500 million of the notes (B2/B+) last Wednesday at par.

Sherritt International Corp.'s 7.5% debentures of 2020, of which an upsized C$500 million were sold Sept. 19, traded at 102.75 bid, 103.25 offered, the trader said.

Toronto-based Sherritt produces coal, oil, gas and electricity and mines nickel.

"The market felt "firm," the bond trader said. "People have too much cash; and we need more new issues, but I think everyone is tucking in for the year."

Without much by way of catalysts, investors were not making big switches, a second source said.

"Yields are little changed, and people are sitting on their hands after a lot of action on Friday," a market source said.

Third-quarter earnings

While there was no economic data out on Tuesday and no significant data scheduled for release this week following last week's positive U.S. and Canadian jobs reports, third-quarter earnings were being looked at to provide some flow in the bond markets.

Otherwise the uncertainty on the macro front was keeping a damper on things, a bank economist said.

"There's a bit of a tug of war [in the markets]. We had solid employment, but a weaker forecast from the IMF. Then there is the uncertainty with the fiscal cliff and Europe. Because of that uncertainty in the market, there is oscillating back and forth, and I think we are going to be range bound until early next year," the economist said.

The economist predicts a pickup in growth next year.

The International Monetary Fund said in a report that that the risk of a steeper slowdown in global growth is now "alarmingly high."

The IMF's Global Financial Stability Report said that the risks to financial stability have increased since April 2012, pointing to the euro area's debt crisis as a principal source of concern.

It also said both Japan and the United States need to take steps toward medium-term fiscal adjustment, while emerging market economies have successfully navigated global shocks so far, but need to guard against future shocks while managing a slowdown in growth.

Government bonds ended flat to higher with yields flat to lower as safe-haven bidding rose on the IMF report.

Canada's 10-year note yield closed 2 bps lower at 1.805%. The two-year bond yield was unchanged to 1.138%.

Treasury auction held

The Bank of Canada priced C$7.4 billion of bills due Jan. 17, 2013, bringing the total amount of those bills to C$12.5 billion. The average price was 99.73463, and the average yield was 0.991%. Bids were received for C$16,014,000,000 of the bills, of which C$32 million were non-competitive.

The bank also priced C$2.8 billion of bills due March 28, 2013, bringing the total of those bills to C$6 billion. The average price was 99.52223, and the average yield was 1.043%. Bids were received for C$6,958,145,000 of the bills, of which C$32 million were non-competitive.

Finally, the bank priced C$2.8 billion of bills due Sept. 26, 2013, bringing the total to C$6 billion. The average price was 98.92242, and the average yield was 1.136%. Bids were received for C$7,217,000,000 of the bills, of which C$400 million were non-competitive.

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