Month-end trading light as holiday hush falls on Canadian markets; September pipeline eyed

By Cristal Cody

Prospect News, Aug. 31 - Action slowed to a crawl ahead of the early holiday close on Friday in Canada's bond markets, informed sources said.

"It was a pretty quiet day today," one corporate bond source said. "It's one of the lightest days in terms of month-end flows that we've had all year, so there's definitely not much going on."

Melbourne-based Telstra Corp. (A2/A/A) held its non-deal roadshow in Toronto on Friday after making stops in the U.S. market earlier in the week, according to a source.

RBC Capital Markets Corp. and Scotia Capital Inc. were the hosts.

Primary activity is expected in the week ahead on the back of stronger Canadian bank earnings, according to bond sources.

Canadian bank paper traded slightly lower in the thin volume on Friday following a week of better-than-expected third-quarter earnings results from all the major banks. On Friday, Montreal-based Laurentian Bank of Canada also reported positive quarterly earnings.

In the secondary market, Toronto-based Bank of Nova Scotia's 3.34% notes due 2015 (Aa1/AA-/DBRS: AA) edged lower to 103.54 bid in thin trading, a market source said.

Bond spreads didn't veer far over the day.

"They were unchanged at the open and flat at the close," another bond source said.

The Markit CDX Series 18 North American investment-grade index firmed 1 basis point to a spread of 102 bps.

The Markit CDX Series 18 North American high-yield index rose to 98.29 from 97.91.

Light activity

U.S. Treasuries rallied after Federal Reserve chairman Ben Bernanke left the possibility of additional bond buybacks on the table in his speech early Friday, while Canadian government bonds made modest gains on the short end.

"There just wasn't enough participation in the market to really have an effect," a source said of Bernanke's comments.

Canada's 10-year note yield ended flat at 1.77%, and the 30-year bond yield closed unchanged at 2.34%.

In economic data, Canada's gross domestic product rose 0.5% in the second quarter, Statistics Canada said on Friday.

The short week ahead includes the Province of Quebec's election, a Bank of Canada rate announcement, the European Central Bank's policy meeting and U.S. and Canadian job data for August.

"Next week is a heavy data week," a market source said. "The following week, the FOMC meets and we get the German constitutional court [on the constitutionality of bond purchases in Europe], so there's lots of important happenings over the next couple of weeks."

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