Goldman maple bonds firm 8 bps to 200 bps in trading; Fed likely to impact Canada auction

By Cristal Cody

Prospect News, Oct. 28 - Goldman Sachs Group Inc.'s maple bond firmed in secondary trading as interest in debt from foreign issuers seems to be making a comeback, a source said Thursday.

New York-based financial services bank Goldman Sachs sold C$500 million 4.1% senior unsecured maple bonds due Nov. 3, 2015 in Canada on Wednesday at 99.991, or a spread of 208 basis points over the Canadian benchmark curve, to yield 4.102%.

Maple bonds are securities issued by foreign companies and denominated in Canadian dollars.

"It was at least three times oversubscribed," said Paul Gardner, a partner and portfolio manager at Avenue Investment Management in Toronto.

Investors "thought there was some value there because the maple bond market is still healing from the '08-'09 crisis," he said. "We're getting some really good spreads out of the market and some value there."

Goldman's maple bonds narrowed 8 bps on Thursday to 200 bps over.

"Before spreads were too tight and showed no value in that sector, but now it's different," Gardner said.

U.K.-based Lloyds TSB Bank plc priced its first issue of maple bonds on Sept. 29 with the sale of C$350 million in five-year notes. The 4.57% notes priced at par, or 260 bps over the Government of Canada curve.

Elsewhere in corporates, credit came in, but pressure remained on the Canadian bond market.

"We just had a bit of a small rally after the equity markets held up," Gardner said.

Market awaits auction

The Bank of Canada announced it will auction C$3.5 billion in bonds due June 1, 2016 on Wednesday.

Since the auction is at noon ET and is on the last day of the Federal Reserve's meeting, there could be some market impact, such as a wider tail on the sale, said Kam Bath, fixed income strategist with RBC Capital Markets Corp.

The Fed is expected to announce the amount it will dedicate to the quantitative easing program, which is expected to target short-dated Treasury notes, after the two-day meeting ends on Wednesday.

"It comes on the same day as the Fed," Bath said. "You could see some tentative participation. A few might want to wait to see what happens with the Fed at 2:15 p.m., and our auction at 12."

Elsewhere, Canadian government bonds rallied along with U.S. Treasuries on a lack of market-impacting economic data on Thursday.

The yield on Canada's 10-year note fell to 2.875% from 2.88%. The two-year note yield dropped to 1.433% from 1.45%.

"We had a backup in yields yesterday, so we saw a little bit of pullback from that," Bath said.

Statistics Canada on Thursday released average weekly earnings that rose 4.4% in August, the highest since February 2008.

U.S. economic data on the day showed initial jobless claims did little to move the markets. Claims fell 21,000 to 434,000 in the previous week, the Labor Department said.

Treasuries rose on renewed expectations the Federal Reserve's quantitative easing program will focus on short-term debt and as the government's auction of $29 billion in seven-year notes was met with strong demand on Thursday.

The yield on the 10-year note fell to 2.66% from 2.72%. The two-year note yield declined 4 bps to 0.37%.

The Treasury sold seven-year notes at a yield of 1.97%, compared to the yield of 1.89% in the auction of seven-year notes in September. The government auctioned about $100 billion in debt during the week, including $35 billion in two-year notes on Tuesday at a record low and $35 billion in five-year notes on Wednesday.

Some traders are staying cautious ahead of gross domestic product figures set for release in Canada and the United States on Friday, Bath said.

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