Canadian bond market volume lightens as desks thin; Vermilion, Catalyst bonds unchanged

By Cristal Cody

Prospect News, Dec. 19 - Canadian bond markets traded on light volume as primary activity cooled on Monday in what is expected to be a quiet week going into the holidays.

"Between now and the end of the year, most desks will be thinly staffed," one bond source said. "I wouldn't expect volume to be robust over the next couple of weeks."

Investment-grade bonds traded flat to weaker on the day. The Markit CDX Series 17 North American investment-grade index eased 1 basis point to a spread of 132 bps.

The high-yield market in Canada was "very quiet" on Monday, a trader said.

Vermilion Energy Inc.'s bonds were unchanged after the company announced it planned to buy interests in six French oil producing fields for C$115 million from Total SA.

Little afternoon trading was seen in Canadian company Catalyst Paper Corp.'s U.S. dollar-denominated bonds after DBRS downgraded the company's senior secured debt to CC from B.

Canadian government bonds traded higher on reports that European leaders could not agree on a plan to increase the bailout package ceiling.

The 10-year note yield fell to 1.83% from 1.87%. The 30-year bond yield fell 5 bps to 2.41%.

"It started off being a fairly constructive day, but in the end, European headlines put a bit of a bid into bonds, especially in the long end," a bond analyst said.

Some folks are "hanging around just for the potential of surprise from headlines to swing one way or the other," the analyst said.

The market could be volatile over the week, also, considering that a "lot of people have squared up positions going into the year-end," the source said.

The week also is fairly heavy with key Canadian economic data releases.

Statistics Canada said on Monday that wholesale sales rose 0.9% to C$49.1 billion in October.

The agency releases the consumer price index for November on Tuesday, retail trade for October on Wednesday, payroll employee data for October on Thursday and the gross domestic product on Friday.

"Tomorrow, we get the CPI and later on the GDP," a source said. "They're trying to cram two weeks into one because they don't want to release any data the last week of the holidays."

Catalyst trading stalls

No secondary market activity was seen in the afternoon in Catalyst Paper's U.S.-dollar denominated bonds after DBRS downgraded the company.

"Not seeing anything on Catalyst," one trader said.

The ratings move followed the company's announcement last week that it would defer interest payment of $21 million on its 11% senior secured notes due 2016, pending finalization of its debt structure strategy.

DBRS said in the ratings announcement that the company faces a higher risk of default if it does not resume interest payments as originally agreed at the end of the 30-day grace period.

Catalyst Paper is a Richmond, B.C.-based paper manufacturer.

Vermilion flat

Vermilion Energy's 6½% senior notes due Feb. 10, 2016 traded unchanged in the Canadian high-yield bond market on Monday.

A trader quoted the notes at 102.25 bid, 104.25 offered.

Vermilion Energy sold C$225 million of the 6½% senior notes due Feb. 10, 2016 (/BB-/DBRS: BB) at par on Feb. 3.

The company announced on Monday its deal to purchase the interests in the oil-producing fields in France. The acquisition is expected to close in late January.

On Nov. 28, Vermilion sold C$263 million of common stock to reduce debt and fund the company's development capital program and prospective acquisitions and for general purposes.

Vermilion Energy is a Calgary, Alta.-based oil and gas producer.

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