Canada Bond Issuers Jump on Domestic and International Windows

(Bloomberg) -- Bond issuers in Canada across the investment-grade ratings spectrum came to the same conclusion Wednesday: It’s the right time to issue debt.

Canada is selling $3 billion of three-year bonds and Bank of Montreal priced credit-card backed securities in the U.S. dollar market, while Royal Bank of Canada issued senior bonds in euros. In the domestic market, Quebec and Ontario, the country’s two largest provincial economies, raised 10-year debt in separate transactions, while Ontario Power Generation issued the first green bond of the year in Canada. Edmonton, Alberta-based Capital Power, which is rated at the low-end of the investment-grade scale, sold seven-year bonds after reviving issuance plans shelved in November.

Canadian issuers are rushing into the bond market with the tone in global markets improving. The U.S. Federal Reserve and the European Central Bank are moving to reassure the markets they will take a gentle approach to tightening monetary policies. Risk spreads in Canada are also tightening as chances of an interest rate hike by late April declined to less than 25 percent, according to futures trading, compared with close to 50 percent a month earlier.

“With market volatility in the fourth quarter, a lot of issuers may have been monitoring the market and not wanting to issue into widening spreads or uncertainty,” said Sue McNamara, fixed-income portfolio manager at Beutel Goodman & Co., who helps manage C$13 billion. “With the snap back in credit year-to-date, any day where the market is fairly calm, several issues may all come at once.”

The top-rated North American nation will price the notes at a spread of 10 basis points over similar duration U.S. Treasury bonds, people familiar with the matter said Thursday. The notes were marketed at a guidance spread of about 12 basis points. Canada last sold greenback-denominated bonds in November 2017 when it raised $3 billion by issuing 2022 bonds at a spread of 9 basis points over Treasuries, according to Bloomberg data.

Bank of Montreal priced $476.2 million of credit card backed securities, of which the biggest portion was $450 million portion of top rated bonds priced to yield 48 basis points over 1-month Libor, according to Bloomberg data. Royal Bank of Canada issued 500 million euros of two-year floating-rate senior bonds at a spread of 38 basis points over the three-month euribor.

In the domestic market Quebec and Ontario raised C$1.25 billion in separate 10-year bond issues priced Wednesday. Quebec priced its deal at 77 basis points over the Canada’s government bonds, while Ontario sold bonds at a spread about 5 basis points higher. Ontario Power Generation, rated at S&P Global Ratings’ third lowest investment grade, sold C$500 million of 30-year bonds at the tight-end of a spread range offered to investors, and Capital Power, whose senior unsecured debt is rated two levels lower, also raised seven-year bonds at the tight end of the yield spread initially offered.

“We believe there is a considerable amount of cash waiting on the sidelines to be invested in spread product as the move back towards risk-on accelerates,” said Jason Parker, head of North American credit research at Bank of Montreal. “The stronger relative profile of Canadian issuers on a global scale make their deals outside the country particularly attractive to international investors.”

Corporate bond yields for companies rated at the low end of investment grade -- a proxy of the market tone -- are compressing, according to Bloomberg Barclays Global Aggregate Corporate BBB- index. The gauge’s yield was at 3.22 percent Wednesday compared to as high as 3.35 percent on Nov. 30. Corporate bond spreads over Canada’s government bonds declined Wednesday to 144 basis points, the smallest gap in one month, according to Bloomberg Barclays Canada Aggregate- Corporate index.

“I guess confidence is back with spreads tighter, equities up, oil up. All seems to be good in the world. What trade war, what Brexit, what heavy new issue calendar?,” said Alex Schwiersch, a fund manager at Algonquin Capital, which manages C$400 million of assets.

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