Canadian bonds: Market flat, pricing in forecasted rate hikes; Teck, Ontario bonds tighter

By Cristal Cody

Prospect News, Sept. 10 - Canadian bond prices fell slightly over the week as investors felt more encouraged by economic reports to rally stocks and on a concern the Bank of Canada will hike interest rates again in October.

Trading sessions were mostly quiet on the short holiday week with the Labor Day holiday and the Rosh Hashana holiday.

A gain in the August jobs report and comments from Bank of Canada governor Mark Carney, who said Friday that future rate hikes may be considered, were the main focus of the day.

"Most forecasters in Canada expected the Bank of Canada to probably move to the sidelines after the rate hike and that wasn't made explicit in their statement," said Sheldon Dong, vice president of fixed-income strategy at TD Waterhouse Canada in Toronto. "The bond market is pricing in that we might see [an] October raise. The odds are about 50/50."

On Wednesday, the Bank of Canada said it will raise interest rates by 25 basis points to an overnight rate of 1%.

Meanwhile, the new debt sold on Wednesday from Teck Resources Ltd. and the Province of Ontario firmed in secondary trading on Friday, according to sources.

Teck tranches firmer

The new debt Teck Resources sold on Wednesday was tighter on flat trading Friday, according to a source.

The company sold $700 million of senior unsecured notes (Baa3/BBB) in two tranches.

A $500 million tranche of 4.5% notes due 2021 priced at Treasuries plus 185 bps.

In secondary trading, the notes were last seen active in trading on Thursday with a quote of 180 bps bid, 170 bps offered.

The second tranche was a reopening of 6% notes due 2040 to add $200 million. They priced at a spread of Treasuries plus 215 bps.

The notes were seen trading early Thursday at 210 bps bid, 200 bps offered.

The mining and metals company is based in Vancouver, B.C.

Ontario bonds 1 bp tighter

The Province of Ontario's new notes sold on Wednesday were slightly tighter in the secondary market, a source said.

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