Canada Housing to sell mortgage bonds; Corporate, muni deals in forecast; Xstrata firms

By Cristal Cody

Prospect News, Nov. 4 - Bond markets quieted on Friday after the rush of Canadian deals in Canada and the United States on Thursday, sources said.

"It's been very quiet. [Yesterday] CIBC came with a deal, AltaLink had a deal and HydroQuebec," a bond source said. "[It] seems like everybody just wanted to get it done yesterday before the weekend started."

The rush of domestic issuers on Thursday included the Canadian Imperial Bank of Commerce, AltaLink, LP, Hydro-Quebec and the Province of Ontario and two Canadian issuers, Xstrata Finance (Canada) Ltd. and Toronto-Dominion Bank, which priced in the U.S. high-grade bond market.

Canadian primary activity is expected to stay active in the final weeks of the year going into the holidays, one source said.

"There are a number of corporate names, especially in the utility, infrastructure space that are likely to be in the market sometime this calendar year," a syndicate source said. "We've still got about six weeks before things get too close before the holidays."

The week ahead will be a short week with Canadian and U.S. bond markets closed on Friday for holidays.

Coming up later in November, Canada Housing Trust (Aaa/AAA/DBRS: AAA) is expected to sell two tranches of Canada mortgage bonds.

Some municipal bond deals in the 10-year to long bond area also are anticipated before the end of the year from issuers including the cities of Vancouver, B.C., and Toronto, a bond source said.

"A lot of folks leave their refinancing needs to later in the year," the source said.

In the secondary market on Friday, Xstrata Finance (Canada)'s new 10-year and 30-year bonds sold the previous day traded 6 basis points to 7 bps better.

Corporates weaken

Corporate bonds overall were weaker. The Markit CDX Series 17 North American high-grade index eased 2 bps to a spread of 123 bps.

Canadian bonds rose with spreads out about 5 bps on the 10-year note on weaker job data.

The 10-year note yield fell to 2.16% from 2.22%. The two-year note yield dropped 7 bps to 0.93%. The 30-year bond yield was down 4 bps to 2.82%.

Canada's drop in jobs added "definitely took us by surprise," a bond source said. "Everyone was hoping for a lift."

Statistics Canada said Friday that employment dropped 54,000 in October. The unemployment rate rose 0.2% to 7.3%.

In a separate report, Statistics Canada said building permits fell 4.9% in September from August.

Canada Housing to sell CMBs

Looking ahead, Canada Housing Trust is expected to be in the market the week of Nov. 14 with an offering of two tranches of Canada mortgage bonds, an informed bond source said.

The market anticipates a floating-rate note due 2017 and a fixed-rate note due 2022, the source said.

Canada Housing Trust typically issues more than C$1 billion of floating-rate bonds and about C$2 billion of 10-year mortgage bonds.

The trust last sold mortgage bonds on Sept. 20 with an offering of C$5 billion of 1.85% Canada mortgage bonds due 2016 priced at 99.867 to yield 1.877%, or 44 bps over the Government of Canada benchmark.

Canada Housing Trust is a unit of Canada Mortgage and Housing Corp., which offers financing, mortgage loan insurance and mortgage-backed securities.

Xstrata Finance firms

Xstrata Finance (Canada) saw strong demand for the sale of $3 billion of guaranteed senior notes (Baa2/BBB/DBRS: A) in four tranches in the U.S. market on Thursday, and the 10-year and 30-year bonds traded tighter on Friday.

"Little better out there," a trader said.

The 4.95% notes due 2021 firmed to 284 bps bid, 278 bps offered in the secondary market, the trader said.

The company sold $1 billion of the 10-year notes at Treasuries plus 290 bps.

The 6% bonds due 2041 also came in over the day to 293 bps bid, 288 bps offered. The company sold the bonds in a $500 million tranche priced at Treasuries plus 300 bps.

The finance unit of mining company Xstrata plc is based in Toronto.

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