Canadian bonds: Long bond auctioned on cheap; Moody's says Bank bondholders face risk

By Cristal Cody

Tupelo, Miss., Sept. 1 - The Government of Canada auctioned C$1.4 billion in bonds on Wednesday to good demand, a source said.

"The Street did a good job of cheapening up the long bond ahead of time," the source said. "It was very well received all in all."

The 4% bonds due 2041 priced at an average yield of 3.489%, with a low yield of 3.477% and a high yield of 3.496%, according to the auction results from the Minister of Finance.

The issue has $14.1 billion outstanding.

The government-held Bank of Canada purchased C$70 million of the bonds.

Elsewhere in the market, Moody's Investor Service said in a study released Wednesday that holders of Canadian bank bonds may face risk because of the banks' expansion of investment banking activities outside its borders.

Moody's estimates that the losses associated with Canadian banks' wholesale investment banking activities totaled C$22 billion during a three-year period from 2007 through 2009.

"For bank bondholders, this growth in capital markets activity creates a significant amount of incremental risk," Peter Nerby, a senior vice president of Moody's and co-author of the report, said in a press release. "Global capital markets businesses require the periodic assumption of risk concentrations, and this has produced outsized losses for at least some Canadian banks during both the current and previous credit cycles."

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