Canada bond flows slow; financials start to recover; utility, infrastructure bonds better

By Cristal Cody

Prospect News, Aug. 11 - Activity in the Canadian corporate bond markets slowed on Thursday as volatility continued, bond sources said.

The Canadian markets watched the busy investment-grade issuance in the United States on Wednesday while domestic primary activity remains at a lull. Issuance in the U.S. markets slowed again on Thursday.

"That wouldn't be the Canadian way to launch a deal in a market that was down and so volatile," one syndicate source said.

Activity in secondary trading also dropped on the week, though spreads are tighter.

"Secondary flows have slowed down on investor fatigue," a source said. "All of this volatility, investors just back away from the market."

In high-grade trading on Thursday, financials including Toronto-Dominion Bank's deposit notes sold in late July, are still off along with other bank paper, though improved from Wednesday's trading. Financial stocks also made gains on the day.

"Most of the liquidity is in the deposit note space; those are the most liquid securities in the corporate bond market in Canada," one source said. "That's pretty indicative of what's going on in the deposit note space generally. They're firming up from the wides we saw late yesterday and even early this morning.

"We're not back to where we were at the end of July but we're not at the wides."

Much of the widening came in the financial sector, with better performance seen from utility and infrastructure corporate bond sectors, the source said.

"Especially the regular utilities, they have outperformed the financial space," the source said. "We've also seen good demand for longs, utilities and infrastructure."

Canadian government bonds fell across the curve after rallying all week after the U.S. Treasury saw a "terrible auction" on weak demand for $16 billion of 30-year bonds, one trader said. Canada's 10-year note yield rose 10 basis points to 2.45%. The 30-year bond yield rose to 3.07% from 3%.

U.S. Treasuries saw major losses on the day. The 10-year benchmark note yield rose to 2.34% from 2.1%, while the 30-year bond yield climbed 25 bps to 3.76%.

In economic data, Statistics Canada said that exports fell 1.7% in June and imports fell 0.2%. Canada's trade deficit widened to C$1.6 billion in June from C$1 billion in May.

Expectations are growing that the Bank of Canada will keep interest rates low following Tuesday's policy announcement from the U.S. Federal Reserve that it will keep rates in check for two years.

Toronto-Dominion Bank active

In the secondary market, the 2.948% five-year deposit notes that Toronto-Dominion Bank (Aaa/AA-/DBRS: AA) sold in July traded at 94 bps bid, 89 bps offered on Thursday, a bond source said.

"They're well in from the wides but not back to new-issue bid yet," the source said.

The bank sold C$1.75 billion of the deposit notes at 83 bps over the Canadian bond curve on July 27.

The bank and financial services company is based in Toronto.

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