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Corporate Bond Sales Climb to Highest Since April: Canada Credit Markets

Canadian companies led by Bank of Nova Scotia and Sobeys Inc. raised almost C$3 billion ($2.8 billion) selling bonds the first four days of June, the highest weekly total since April.

“This was a big week,” Robert Follis, head of corporate bond research at Bank of Nova Scotia’s Scotia Capital unit in Toronto, said in a telephone interview. “I don’t expect this type of weekly pace to continue, but I wouldn’t be surprised to see us go back to the April type of levels.”

Companies that postponed debt sales in May after equity markets plunged are bringing issues forward to June, adding to the pipeline of sales for this month, said Jason Parker, head of fixed-income research at Bank of Montreal’s BMO Capital Markets.

“The market bounced back at the beginning of the week, both equity markets and credit spreads, so issuers used that opportunity to tap the improved sentiment from investors,” Toronto-based Parker said.

Canadian companies sold C$7.94 billion in April, before issuance dropped to C$4.34 billion in May, according to Bloomberg data. Overall, Canadian companies have sold C$37 billion in bonds this year, or about 50 percent more than in the same period of 2009.

Companies selling debt last week included Calloway Real Estate Investment Trust, Sobeys, General Electric Capital Corp., First Capital Realty Inc. and Caisse Centrale Desjardins du Quebec. Bank of Nova Scotia, the country’s third-biggest lender, sold C$1.25 billion in bonds maturing in June 2017, priced to yield 102 basis points over comparable government notes.

More Debt Sales

Canadian corporate issuance may reach C$7 billion to C$8 billion in June and July, depending on global credit markets, according to Scotia’s Follis.

“It is all dependent on what goes on in Europe,” Follis said. “There are issuers who would like to issue and investors who would like to buy, but they’re only going to do that if the markets are calm.”

Elsewhere in credit markets, Bank of Canada Governor Mark Carney and Bank of France Governor Christian Noyer will speak today about economic recovery during the International Economic Forum of the Americas Conference of Montreal.

The extra yield investors demand to own Canadian corporate bonds instead of government debt rose to 150 basis points on June 4, from 149 basis points the previous day, according to a Bank of America Merrill Lynch Index.

Covered Bonds

Standard & Poor’s Ratings Services assigned a AAA preliminary credit rating to Bank of Montreal’s $2 billion covered bonds. Canada’s fourth-largest lender sold 2.85 percent U.S.-denominated notes maturing 2015, priced to yield 72.3 basis points over government debt.

Royal Bank of Canada, the country’s biggest bank, sold a $4 billion floating-rate note in the U.S.

“Canadian bank issuance was really heavy in the week, but a lot of it was through U.S. dollars,” Follis said.

Canadian banks need and want U.S. dollars, and they also like to diversify funding sources beyond their home currency, Follis said.

“They know the Canadian dollar market has a large capacity but not an unlimited capacity,” Follis said. “As the Canadian banks are getting bigger they are going to have to do a portion of their funding in other currencies as well.”

To contact the reporter on this story: Doug Alexander in Toronto at dalexander3@bloomberg.net

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