Canada corporate bond market issuance perking up again

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Source: Reuters

Recent Reuters article highlights Canadian corporate bond issuance perking up again, rebounding after a lull 10 months. Brian D’Costa, President of Algonquin Capital said “After more than a decade of return-free risk in fixed income, current yield levels are very attractive. We haven’t seen such yield levels in the last 15 years, and portfolio managers have cash to put to work”. Companies including Enbridge, Bell, Bank of Nova Scotia and Brookfield Renewables raised a combined C$4 billion by issue of new corporate bonds in the first week of November, capping the busiest week for issuance in six months.

Some new bonds drew investors by offering juicy yields upwards of 5%, attractive for high grade fixed income products at a time of high volatility in the equity markets.

Bond dealers expect further issuance in coming weeks from Canadian utilities, pipeline companies and possibly real estate investment trusts (REITS). They expect investors to return to fixed income markets that this year had seen the biggest outflows in two decades as interest rates soared.

“The corporate bond market is opening again, this comes at a time when see the Federal Reserve and Bank of Canada are done with their round of interest hikes,” said Thomas Holloway, of Pacifica Partners, “So companies are trying to get things done quietly.”

The Canada trend is in line with global resurgence in the bond market as investors expect a peak in inflation should prompt a pause in rate hikes from central banks. Corporate bond issuance in Canada fell 44% in the first nine months of the year to C$34.0 billion, according to data from Refinitiv.

Last month, the Bank of Canada flagged slower pace of interest rate hikes after surprising the markets with a 50 basis point increase in its key rate at its meeting.

Fund managers expect non-financial companies to lead the way as companies look to raise funds to either refinance debt or build cash in the balance sheet for capital expansion. This year in Canada, most corporate bond issuances have been from banks, and many portfolio managers have reached their limits on the financial sector.

Bell offered its 10-year bond at a coupon of 5.85%, while Bank of Nova Scotia sold five year bonds worth C$1.5 billion with a coupon rate of 5.5%.

Companies anticipating further rate hikes from the Bank of Canada could prefer to issue fixed rate bonds instead of opting for a floating rate commercial loan, analysts said.

After a lull of first 10 months, the S&P Canada Investment Grade Corporate Bond Index has risen by 0.61% in the last one month, though year to date it is down 10%.

A Bank of America Global Research published last week noted that investors have bought bonds worth $2 billion in first week of November, the most in the last four months.