* Pfandbriefzentrale der Schweizerischen Kantonalbanken
Maturity: December 20, 2012
Issue price: 100.75
Launched: Wednesday, November 29
Lead mgr: Zürcher Kantonalbank
There has been strong demand for this kind of paper for the last few weeks, so we were expecting a good performance. Nevertheless, we were still surprised by how much paper we were able to sell on the first day, given the large size of the offering.
By the end of Wednesday, we had sold the bulk of the deal. Sales benefited from a dramatic movement in swap spreads, which went higher in the morning until the pricing looked attractive on this deal. PSK paper normally trades at around 6bp-7bp below the swap offer rate, but we were in a position to offer the paper at a first price of 2bp below swaps.
Compiled by Jim Webber,
TD Securities, London,
Tel: +44 20 7282 8216
The results of this week's federal election turned out much as opinion polls had predicted.
The Liberal government was re-elected with a comfortable majority over all other parties of about 45 seats, subject to two as yet unresolved recounts. The new Canadian Alliance will form the official opposition.
In winning a third mandate, prime minister Jean Chrétien has also won the chance to decide for himself when to quit the political scene. Market participants will continue to await clues as to whether finance minister Paul Martin will get an opportunity to claim the top job.
The Canadian dollar enjoyed only a brief relief bounce once the election uncertainty lifted. It strengthened to C$1.5285/US$ on the day after the election, but then quickly returned to its previous trading range between C$1.5400/ US$ and C$1.5500/US$. The hourly chart has traced out a head and shoulders profile that may signal further weakness, although this may have been invalidated by the currency's sharp rally in the wake of the third quarter GDP data (see below).
The currency appears to be struggling against the December "wall of money" - the C$22bn of bond redemptions and coupons due this month. As offshore investors take this opportunity to lighten positions, the Canadian dollar could remain vulnerable until mid-month.
Over the last two years, large redemption flows have resulted in Canadian bond market outperformance, but this effect seems to be fading. Despite the large cash injection, the bellwether 10 year spread has remained narrowly in positive territory.
One reason for this is the relaxation of restrictions on foreign asset holdings that comes into effect in January.
Rather than scrambling for replacement fixed income product, investors appear to be building cash holdings in anticipation of adding to foreign equity holdings early in the new year. If this is the case, the scope for the Canadian dollar to rally in early 2001 may be limited.
Canada's third quarter national accounts confirmed that, at least for now, Canada's economy is outpacing the US. The economy grew at an annualised rate of 4.8% in the quarter, versus the downward-revised 2.4% in the US. The current account remained in surplus at an annualised rate of C$13.6bn, equal to 1.3% of GDP.
The good news may not continue for much longer: both growth and the current account surplus will shrink during 2001 in response to the slowdown in the US economy. However, the economy's strength gives the Bank of Canada little reason to contemplate easing policy, even if the US Fed soon moves to a neutral bias.