Canadian bonds mostly quiet; government bonds firm slightly as global equity markets swoon

By Rebecca Melvin

New York, Nov. 21 - Canadian bond markets were muted Monday amid a dearth of domestic news and as global equity markets fell in the face of a warning from Moody's Investors Service Inc. about France's credit rating and as U.S. lawmakers looked likely to admit an impasse on cutting America's federal budget deficit.

"It was quiet, with no new issues in the market. So it was a little bit soft," a Toronto-based corporate credit strategist said.

"We had a relatively busy week last week, but when the markets are collapsing and given that it's a Monday, we were very quiet," the strategist said.

While corporate and provincial bond markets were quiet and softer, government bonds firmed slightly in line with prices in U.S. Treasuries.

Canada's 10-year note yield fell 2 basis points to 2.11% from 2.13%.

The 30-year bond yield moved down 2 bps to 2.72%.

"It's the one area that has lower yields than the U.S.," a capital market firm's economist said of the long bond yield.

The Canada five-year note yield was at 1.38%; and the two-year note stood at 0.9% on Monday.

In economic news in Canada on Monday, wholesale trade sales were up 0.3% month over month to C$48.7 billion, which was weaker than expected.

Statistics Canada said that the largest wholesale sales increase was recorded in the miscellaneous category, which was largely due to a strong gain in agricultural supplies. Wholesale trade in food, beverage and tobacco products also posted an advance.

Activity in the Canadian bond market wasn't expected to perk up on Tuesday, as business was anticipated to taper off through the week as U.S. markets closed down for the American Thanksgiving holiday on Thursday. Canadian markets will remain open, but they are expected to be generally quiet.

On Tuesday, market participants will watch for Canadian retail sales numbers. Other than that, there are expected to be few catalysts to spark action in either the primary or secondary bond markets, sources said.

The Canadian bond markets are "largely fixated on concerns about Europe," one source said.

On Monday, Moody's said the widening of France's borrowing costs in tandem with lower growth prospects would put further pressure on that nation's creditworthiness and the outlook for its AAA rating. It had already warned in October that the stable outlook was in the cross hairs.

Meanwhile, it looked like the U.S. congressional deficit-cutting supercommittee failed to work out a plan for cutting $1.2 trillion from the American budget deficit, which signals the likelihood that any real progress on that front will have to wait until 2013, after U.S. elections.

That development kicks another leg out from the table for global markets, which have been continuing to invest in U.S. securities in hopes that the U.S. could lead the way out of the world's sovereign debt problems.

"We saw firming in prices in line with the [U.S.] Treasury market, but nothing special," a market source said of the Canadian bond market on Monday.

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