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Feb 26, 2020

As U.S. bonds stall, Canada notches record low corporate coupon

Andrew Pyle discusses Hydro One


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Hydro One Ltd. raised $1.1 billion in the largest Canadian dollar bond from a non-financial company this year, even as global credit markets grind to a virtual halt amid the coronavirus outbreak.

The three-portion transaction included $300 million of 30-year bonds which were priced at coupon of 2.71 per cent, the lowest ever for a long corporate bond in the Canadian dollar market, according to BMO Capital Markets. The deal also included $400 million of five-year notes and $400 million of 10-year notes.

The Canadian issue came as bond markets in the U.S. faced their third straight day Wednesday without any bond offerings as companies grapple with increasing uncertainty over earnings due to the virus. Investors have been streaming into the safety of government bonds with the yield on 30-year Canadian government bonds falling as low as 1.298 per cent Tuesday. That was less than a basis point above the record low in August 2019, according to data compiled by Bloomberg going back to 1990.

Still investors snapped the Hydro One issues up. The deal was priced even as risk spreads expanded to the widest since mid-December, according to Bloomberg Barclays data. It was oversubscribed by about two to three times, according to people familiar with the information provided by arrangers to investors.

But the 10-year bonds widened to about 99 basis points over their benchmark government bonds on Wednesday, according to Bloomberg data. That compares with 97.9 basis points when they were priced Tuesday.