RBC taps U.S. market for $2.5 billion; JPMorgan sells C$1.25 billion of notes, paper firms

By Cristal Cody

Prospect News, Sept. 12 - Canadian corporate bonds came in on Wednesday as the day's primary action centered domestically on JPMorgan Chase & Co.'s C$1.25 billion five-year maple bond offering and the Royal Bank of Canada's $2.5 billion five-year covered bond deal in the U.S. market.

"The market is in very good shape," one bond source said. "We might get a little indigestion here but not much."

Primary market activity on Thursday likely will be shaped by the U.S. Federal Reserve's monetary policy statement. Participants are split on whether the Federal Reserve will announce a third round of bond buybacks to stimulate the economy.

"That's a potential hiccup for the market, but if we don't get any of that risk, there's still plenty of capacity for new issues," a source said.

JPMorgan's paper tightened about 2 basis points in the secondary market, a source said.

RBC's new debt, which was registered with the Securities and Exchange Commission, a first for covered bonds, came late in the day with no aftermarket activity seen by traders.

Investment-grade and high-yield bonds traded better over the day.

"Everything's better bid," one source said.

The Markit CDX Series 18 North American investment-grade index firmed 3 bps to a spread of 91 bps.

The Markit CDX Series 18 North American high-yield index moved up to 100.75 from 100.24.

Other bank paper was mostly better on Wednesday, including Bank of Nova Scotia's 2.55% notes due 2017.

National Bank of Canada's 2.2% notes due 2016 traded in 5 bps on the day, and Toronto-Dominion Bank's 1.625% notes due 2016 firmed 3 bps, a market source said.

Government bonds fell following a German court ruling that clears the way for a euro bailout fund and on trades ahead of the Federal Reserve's policy statement.

Canada's 10-year note yield ended 4 bps higher at 1.90%. The 30-year bond yield rose to 2.49% from 2.44%.

RBC sells $2.5 billion

In the U.S. market, the Royal Bank of Canada priced $2.5 billion of 1.2% five-year covered bonds (Aaa/AAA) on Wednesday to yield mid-swaps plus 35 bps a market source said.

The deal was priced in line with talk in the mid-30 bps over mid-swaps area.

The bonds were registered with the SEC, the source said, adding that this was a first for covered bonds.

Full terms were not available at press time.

Bookrunners were Morgan Stanley & Co. LLC, RBC Capital Markets LLC and RBS Securities Inc.

The bonds priced late in the day, and no secondary activity was seen.

The financial services company is based in Toronto.

JPMorgan Chase taps market

Domestically, the market was focused on JPMorgan Chase's offering of C$1.25 billion of five-year maple bonds, sources said.

The 2.92% senior notes due Sept. 19, 2017 (A2/A/A+) priced at par to yield a spread of 147 bps over the Canadian bond curve.

J.P. Morgan Securities Canada Inc., RBC Capital Markets Corp., Scotia Capital Inc. and TD Securities Inc. were the joint lead managers.

Proceeds will be used for general corporate purposes, which may include the repayment of debt, investments or extensions of credit to subsidiaries, redemption of securities or to finance possible acquisitions or business expansion.

The maple bonds tightened to 145 bps bid, 143 bps offered in the secondary market, a source said.

The financial services company is based in New York City.

Scotiabank better

In the secondary market, Bank of Nova Scotia's 2.55% notes due 2017 (Aa1/AA-/) firmed to 53 bps from 61 bps on Tuesday, a market source said.

The issue priced in a $1.25 billion offering on Jan. 5, 2012 at Treasuries plus 172 bps.

The bank is based Halifax, N.S.

National Bank of Canada firms

National Bank of Canada's 2.2% notes due 2016 (Aaa) traded in 5 bps to 20 bps, a bond source said.

The bank sold $600 million in a reopening of the notes on Feb. 6, 2012 at a spread of 67 bps over Treasuries. The issue originally priced on Oct. 12, 2011 in a $1.4 billion offering at Treasuries plus 104.5 bps.

The financial services company is based in Montreal.

TD tightens

In other trading, Toronto-Dominion Bank's 1.625% notes due 2016 firmed 3 bps to 11 bps, according to a market source.

The bank sold $3 billion of the 1.625% five-year bonds on Sept. 7, 2011 at a spread of mid-swaps plus 44 bps or Treasuries plus 73.4 bps.

The bank and financial services company is based in Toronto.

Andrea Heisinger contributed to this review

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