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Daily Market Commentary

Bond traders seem a little slower off the mark this morning to get markets going on BCE debt.  Following the Supreme court's decision to back equity holders we would expect to see all the bonds go lower, and liquidity on longer strips to be non-existent, although we would argue there will be limited downside as these bonds are already trading like BB rated debt.

  So we're right back where we started before the courts got involved in the first place.  Once again, the lawyers are the big winners, everyone else just gave up time (there's something to be said for charging by the hour)

Now we're back to the speculation we were having before - will the banks try to back out of the deal, which supposedly is pretty iron-clad, or does the deal go ahead as is.

   We expect the lawyers will win once again with new bond issuance.  We can debate whether or not this is the right decision for BCE forever... only time will answer that question, but you will be SURE to see is much stronger bond covenants on new issues.  Telus and Sherritt have already introduced "change of control" puts and "downgrade below investment grade" puts (another discussion follows on the loyalties of the rating agencies).

From now on we will have two corporate bond markets.  The higher yielding issues from before BCE and the lower yielders issued after.

... Just in case the covenants weren't confusing enough already for you.

   Data is light in Canada this week, but heavy in the US.  A lot of numbers will push around the treasuries and we will follow in tow.  It will be interesting to see if the data confirms the Fed's recent hawkish tone.  We will learn a bit more about that on Thursday as the Fed meeting ends and we hear their outlook in the statement.  The consensus is currently no change (2.00%) while 10% is banking on a 25 bp hike.

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