Toronto trades 'in line' after pricing; American Express steady; all eyes on payrolls Friday

By Rebecca Melvin

New York, June 2 - The City of Toronto priced C$350 million of 30-year bonds at 123 basis points over the Government of Canada June 2041 benchmark on Thursday and the new debt subsequently traded in line with the overall Canadian bond market to maintain its spread, a syndicate source said.

On a nominal basis, the price was essentially unchanged in the secondary market after pricing, the syndicate source said after the market close.

There was no new issuance of corporate or provincial bonds on Thursday, market sources said.

Government bonds were down in line with U.S. Treasuries, amid some consolidation ahead of the widely anticipated U.S. nonfarm payrolls report for May that was expected to be released Friday and amid sovereign debt developments in Europe. The bond market had rallied on Wednesday.

Canada's 10-year yield rose to 3.03% near the market close, which was up 4 basis points from a multi-month low of 2.993% on Wednesday. The 30-year Canada bond yield was 3.51%, up 5 bps near the close, according to a market source.

"The market has rallied hard for weeks," and the 10-year got below 3% so Thursday there was some consolidation ahead of payrolls and also as investors digest the eurozone's new action plan for Greece," a bond market strategist told Prospect News.

A second bond market source said Thursday, "There was nothing new in issue flows; and general portfolio positioning and fairly active secondary action."

American Express Canada Credit Corp., which priced C$725 million of fixed- and floating-rate notes in dual tranches Wednesday, saw both tranches active in the secondary market. They were flat to a single basis point tighter, with the spread maintaining levels close to issue on the five-year fixed tranche and similar action seen in the floating rate notes.

Equities were mostly lower in the Canadian and U.S. markets as U.S. economic data continued to weigh on sentiment.

Markets swooned Wednesday after the ADP employment report, published by Automatic Data Processing Inc. and Macroeconomic Advisors, showed that U.S. private-sector jobs rose by just 38,000 in May, which was drastically lower than economists' expectations.

On Thursday, the U.S. government said that first-time applications for unemployment benefits slipped to 422,000, which was lower .than the previous week's 424,000 applications, but still above the 419,000 that economists had expected.

On Friday, the widely anticipated U.S. nonfarm payrolls data is expected to be released and many have trimmed their forecasts following the data that came out earlier in the week.

One Canadian forecasting outfit has cut its forecast to 165,000, which "has been trimmed somewhat," the company's representative said.

Toronto steady in secondary

The City of Toronto's 4.70% bonds due June 10, 2014 priced at 99.569 via bookrunner Scotia Capital Inc., and traded in line with the overall market Thursday afternoon.

Toronto, Canada's largest city, priced C$350 million of bonds Thursday that were rated Aa2 by Moody's Investors Service, AA by Standard & Poor's, and AA by DBRS.

The underlying benchmarks were basically unchanged so the price at which it came, 99.569, was maintained, a syndicate source said.

American Express steady

American Express Canada traded some in the secondary market Thursday and maintained its spread a second day after pricing.

The bonds represent the first time that American Express has been back in the Canadian market since the autumn of 2009, a corporate bond strategist said.

The fixed portion of the bond issue traded flat to a basis point tighter following some tightening Wednesday. The floating-rate notes, which in general are less active in trade, were also changing hands at essentially the same spread from issue.

In general, the Canadian bond market continues to be active in terms of new issuance, although the last couple of weeks have been a little quieter in the primary, the corporate strategist said.

Nevertheless, the Canadian market is running 40% better year over year across all corporate products including investment grade and high yield.

American Express priced C$400 million of the five-year 3.6% bonds debt maturing June 3, 2016 at a spread of 135 basis points over Government of Canada June 2016 benchmark securities.

They priced at a slight discount to par at 99.973.

The company also priced C$350 million of three-year floating-rate notes maturing in June 2014 at par, matching the talked level of 105 basis points over the one-month Canadian dealer offer rate.

BMO Nesbitt Burns and RBC Capital Markets were joint bookrunners of the offerings.

Payrolls forecasts tumble

There was some consolidation in the Canadian bond market on Thursday, and the yield curve was slightly steeper, but the move was more muted than in the U.S ahead of the payrolls report.

"There was a correction at the long end of the Treasuries curve. The long end has been outperforming and it has been a correcting day for the core sovereign debt markets," a Canadian bond market strategist said.

"The market is bracing for a weak payrolls number and as a result we have already had a big rally in bonds. If it [the payrolls figure] is below 100,000, you'd see another leg higher in Treasuries and in Canada," the strategist said.

"It would increase the debate that the Fed might maintain its policy stimulus to support the economy," he said.

"For Canada, the bank has signaled that it's ready to tighten in the second half, but that is contingent on continuing expansion and continued growth," a market strategist said.

Goldman Sachs & Co. cut its forecast earlier in the week and now expects payroll growth to decelerate to 100,000 jobs in May, and another forecast put the number at 125,000 jobs, which is significantly reduced from the 244,000 jobs in the Labor Department's April report.

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