Bloomberg News

BMO Sells $2 Billion of Bonds as Bank Yield Spreads Tighten

October 26, 2011

(Updates with Royal Bank of Canada sale in sixth paragraph.)

Oct. 26 (Bloomberg) -- Bank of Montreal, Canada’s fourth biggest bank by assets, sold U.S. dollar-denominated covered bonds as relative yields on financial debt in dollars narrow at the fastest pace since March 2010.

The Toronto-based bank issued $2 billion of 1.3 percent three-year notes that yield 50 basis points over mid-swaps, according to data compiled by Bloomberg. The debt, backed by residential mortgages, carries top credit grades from Moody’s Investors Service, the ratings company said in a statement.

The lender follows Royal Bank of Canada, Citigroup Inc. and Goldman Sachs Group Inc. in selling U.S. bonds this week as spreads on financial debt narrow 31 basis points in October to 318 basis points, poised for the biggest monthly tightening since March 2010, Bank of America Merrill Lynch index data show. The spreads and a “decent earnings season” are propelling new issues from large U.S. and Canadian banks, according to Jody Lurie of Janney Montgomery Scott LLC.

“Credit spreads have tightened dramatically for the banking sector from the wides at the beginning of the month, though a continuation of this momentum now depends on Europe,” Lurie, a credit analyst for the firm in Philadelphia, wrote in a note today.

Spreads on financial debt reached 380 basis points on Oct. 5, the widest since August 2009, the index data show.

Royal Bank of Canada, the nation’s largest bank by assets, also sold three-year notes yesterday, Bloomberg data show. The lender’s $1.25 billion of 1.45 percent debt priced with a spread of 105 basis points, the data show.

Covered bonds are usually backed by mortgages or public- sector loans. The collateral underlying the debt remains with the issuer, which also guarantees the bonds.

Bank of Montreal also trails Toronto-Dominion Bank and Bank of Nova Scotia in assets, Bloomberg data show.

--Editors: John Parry, Pierre Paulden

To contact the reporter on this story: Sapna Maheshwari in New York at sapnam@bloomberg.net

To contact the editors responsible for this story: Alan Goldstein at agoldstein5@bloomberg.net


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