July 13, 2011 / 5:20 PM / in 7 years

UPDATE 1-Canada 2-year bond auction "well received"

* Bid-to-cover ratio 2.502

* Auction of 2013 bond yields average 1.576 (Updates with details, comments)

By Solarina Ho

TORONTO, July 13 (Reuters) - Canada’s sale of two-year government bonds met with firm demand on Wednesday, though the bid-to-cover ratio was the second lowest this year.

The C$3.5 billion ($3.65 billion) auction produced an average yield of 1.576 percent, up from 1.572 percent at the last two-year bond auction in June.

“It came about half a basis point through where it was trading in the pre-market, so relatively firm, relatively well-received. It continued to trade OK in the aftermath as well,” said Mark Chandler, head of Canadian fixed income and currency strategy at RBC Capital Markets.

“It continues the string of auctions that we’ve seen of late which are well received, well attended, relatively good bid-to-cover ratios. Generally the bond market, certainly at the front end, has done well in the last several weeks.”

There was more than C$8.76 billion in bids from primary dealers, resulting in a bid-to-cover ratio of 2.502, the measure of investor demand. Chandler said Canadian auctions were typically well-contained within the 2.5 range.

“It’s not always the most important metric if you’re trying to illustrate the success of an auction,” Chandler said.

The auction’s success came even as bond prices slipped across the curve with investors easing back into riskier assets, following a choppy week in markets on concerns the sovereign debt crisis in Europe could spread, and ongoing softness in the U.S. economy.

The bonds, which carry a coupon of 1.500 percent, mature on Nov. 1, 2013 and will be issued on July 15. The outstanding debt of the issue after the auction is C$3.5 billion.

The Bank of Canada said it bought C$525 million of the issue for itself and on behalf of its clients.

$1=$0.96 Canadian Editing by Peter Galloway

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