Review of Debt New Issues and Trading Second Quarter 2004

Transcription

1 Review of Debt New Issues and Trading Second 24 Debt Market Under Pressure in Q2 24 This s Highlights Government of Canada gross bond issuance totaled $13. billion in 29 issues, down 21% in value from last quarter and down 6% from Q2 23. Trading in federal bonds totaled $1.17 trillion, unchanged on a yearly basis. Real return bond trading was $4.8 billion, down 7% in value from last quarter and down 3% from Q2 23. Provincial gross bond issuance totaled $7.8 billion in 6 new issues, down 38% in value from last quarter but up 29% compared to Q2 23. Trading of provincial bonds totaled $93. billion, down 1% from last quarter but up % over Q2 23. Municipal gross bond issuance was $.7 billion in 39 new issues, down 1% in value compared to last quarter and plunged 44% compared to Q2 23. Corporate debt issuance was $12.8 billion, down % in value from last quarter and down 11% over the same quarter a year ago. Corporate debt trading totaled $2.9 billion, down 19% from last quarter and down 29% compared to Q2 23. Trading in money market instruments rose.7% on a yearly basis, totaling $1.6 trillion. T-bill trading increased 17%, while trading of Bankers Acceptances and Commercial paper was down 19% and 7% respectively compared to the same quarter a year ago. Investment Dealers Association of Canada August 24

2 Debt Markets Under Pressure The Bank of Canada (BoC) bucked the global monetary tightening trend in the second quarter by delivering another 2 bps rate cut in the overnight target rate. With the economy in decent shape and the overnight target rate at a mere 2.%, rates are under pressure to turn the corner. The markets have already discounted that the BoC s easing cycle is pretty much history. Canada s economic growth is on track and policymakers may not take long to begin removing excess monetary stimulus to curb inflationary pressures. Rate tightening is expected to be cautious and gradual, however, with the first installment of a 2 bps hike likely in the third quarter. The fixed income market faced a difficult and more volatile environment than the prior period. Growing jitters over the softer U.S. economy, rising interest rates, surging oil prices and geopolitical tensions fueled the turbulence in the Canadian bond market despite some positive developments on the domestic front. Municipal and Corporate bonds were the largest casualties from the retrenchment with trading and issuance activities down by over 3% from last year. In contrast, damage to the Government of Canada bonds market was relatively muted with modest declines in overall trading and issuance activity. Canada-US spreads narrowed further with the spread on short-rates sliding down to 72bps and 7 bps for long bonds from 13 bps and 111 bps respectively last quarter. While bond yields are headed back up on both sides of the border, Canadian bond yields will not likely rise as quickly as in the US. With the dampening effect of the strong Canadian dollar, the BoC may not be as aggressive as the Fed. As such, Canada-US spreads should continue to tighten further in the coming months. The market is bracing for higher rates, but upcoming data trends will determine the pace of the BoC s moves. Canadian and US Short and Long Yield Spreads 2 2 Spread (bps) 1 1 () (1) Canada-US 3-month T-bill Canada-US 1 Government Bond Yield Source: Bank of Canada, US Federal Reserve Review of Debt New Issues and Trading - 24 Q2 2

3 Canadian Interest Rates The BoC shaved off another 2 bps during the second quarter bringing the overnight money market rate down to just 2.%. Looming monetary tightening by the BoC will likely send short-term interest rates back up from these decade-low levels. Long bonds yields backed up sharply during the second quarter with government yields up 34 bps and Corporates up 1 bps from the first quarter. Historical Short-Term Interest Rates 1 12 Bond Yields (%) Spread (bps) Month T-bill 1-Month Corporate 1-Month Spread Source: Bank of Canada Note: 1-Month Corporate = Prime Corporate Paper Rate Historical Long-Term Interest Rates 12 2 Bond Yields (%) Spread (bps) Long Term Canadas Source: Bank of Canada Long Term Corporates Spread Notes: Long-Term Canadas = Government of Canada Marketable Bonds, average yield over 1 years Long Term Corporates = Average Weighted Yield (Scotia Capital Inc.) - All Corporates Long-Term, over 1 yrs Review of Debt New Issues and Trading - 24 Q2 3

4 Government of Canada Bonds: Trading and Issuance The Government of Canada bond market is holding ground. In the second quarter, total trading activity in Government of Canada bonds declined a modest 1% quarter-over-quarter and remained flat from last year. While the number of Government of Canada bond issues remained unchanged in the second quarter at 29 issues, total value was down 21% compared with the first quarter. ly Comparison of Government of Canada Bond Trading over- Q2/3 $1, % 24% Q3/3 $1, % 16% Q4/3 $1,62.8-7% 17% Q1/4 $1, % 1% Q2/4 $1,17.9-1% % Note: Excludes repos ly Comparison of Government of Canada Bond Issuance over- of Issues over- Q2/3 $ % -3% 31 7% 17% Q3/3 $ % 14% 34 1% -13% Q4/3 $ % 23% 38 12% 27% Q1/4 $17.8 3% 22% 29-24% % Q2/4 $ % -6% 29 % -6% Note: Government of Canada Direct and Guaranteed Bonds, including Crown Corporations, total Gross New Issues Delivered, par value Total ly Canada Bond Gross Issuance and Trading 2 1 Gross New Issues Delivered ly Trading Gross Issuance Total Bond Trading Review of Debt New Issues and Trading - 24 Q2 4

5 Government of Canada Real Return Bonds: Trading and Total Outstanding The tame inflation backdrop dampened interest in Canada Real Return Bonds during the second quarter with trading activity down 7% quarter-over-quarter and 3% year-over-year. The value of total outstanding Government of Canada Real Return Bonds reached $18 billion in the second quarter, up 2.3% quarter-over-quarter and 8.4% year-over-year. ly Comparison of Government of Canada Real Return Bonds Trading over- Q2/3 $. -17% 98% Q3/3 $3.6-27% 12% Q4/3 $4.6 26% 7% Q1/4 $.2 13% -13% Q2/4 $4.8-7% -3% ly Comparison of Government of Canada Real Return Bonds Total Outstanding over- Q2/3 $ % 9.2% Q3/3 $ % 9.% Q4/3 $ % 8.8% Q1/4 $ % 8.6% Q2/4 $ % 8.4% Source: Bank of Canada: Bank of Canada Banking and Financial Statistics Total ly Canada Real Return Bond Gross Outstandings & Trading Gross New Issues Delivered ly Trading Total Outstandings Total Bond Trading Review of Debt New Issues and Trading - 24 Q2

6 Provincial Bonds: Trading and Issuance During the period, total provincial bond trading was down 1% compared with the robust activity recorded in the first quarter. Issuance was down 38% quarter-over-quarter but still up 29% year-over-year. Once again, Ontario and Quebec combined accounted for the lion s share of the total provincial bond issuance with 37% and 31% respectively of the market. ly Comparison of Provincial Bond Trading over- Q2/3 $89. -4% 9% Q3/3 $ % -18% Q4/3 $8. 32% 1% Q1/4 $14. 22% 12% Q2/4 $93. -1% % Note: Excludes repos ly Comparison of Provincial Bond Issuance over- of Issues over- Q2/3 $6.6 1% -% 43-3% -34% Q3/3 $.841-4% 19% 63 47% 43% Q4/3 $ % 114% 79 2% 147% Q1/4 $ % 128% 83 % 26% Q2/4 $ % 29% 6-28% 4% Note: Total Gross New Issues Delivered, including Crown Corporations, par value Total ly Provincial Bond Gross Issuance & Trading Gross New Issues Delivered ly Trading Gross Issuance Total Bond Trading Review of Debt New Issues and Trading - 24 Q2 6

7 Municipal Bonds: Trading and Issuance The municipal bond market slowed in the second quarter with both trading and new issuances plunging 3% year-over-year and 44% year-over-year respectively. ly Comparison of Municipal Bond Trading over- Q2/3 $4.1 76% 42% Q3/3 $3.3-2% % Q4/3 $4. 36% 38% Q1/4 $3.1-32% 31% Q2/4 $2.9-6% -3% Note: Excludes repos ly Comparison of Municipal Bond Issuance over- over- of over- over- Issues Q2/3 $ % -12% 64 21% -29% Q3/3 $ % 74% 72 13% 41% Q4/3 $ % 1% 112 6% -3% Q1/4 $.736-9% 26% 64-43% 21% Q2/4 $.66-1% -44% 39-39% -39% Note: Total Gross New Issues Delivered, par value Total ly Municipal Bond Gross Issuance & Trading Gross New Issues Delivered ly Trading Gross Issuance Total Bond Trading Review of Debt New Issues and Trading - 24 Q2 7

8 Corporate Bonds: Trading and Issuance The Canadian corporate bond market could not fend off investor worries over mixed U.S. economic/earnings data, rising interest rates and an equity rally in the TSX. Both corporate trading and new issuance activities recorded substantial declines of 29% and 39% respectively from the same period last year. ly Comparison of Corporate Bond Trading over- Q2/3 $ % 29% Q3/3 $ % 1% Q4/3 $34. 18% -11% Q1/4 $32. -6% -4% Q2/4 $2.9-19% -29% Note: Trading data excludes repos ly Comparison of Corporate Bond Issuance over- of Issues over- Q2/3 $ % 84% % 137% Q3/3 $ % 14% 11-1% 161% Q4/3 $ % 38% 8-26% 18% Q1/4 $ % 13% 79-7% 2% Q2/4 $ % -11% 71-1% -39% Note: Issuance data: Total Gross New Issues Delivered, par value Total ly Corporate Bond Gross Issuance & Trading Gross New Issues Delivered ly Trading Gross Issuance Total Bond Trading Review of Debt New Issues and Trading - 24 Q2 8

9 Sector Breakdown of Corporate Bond Issues Top Corporate Bond Issues for Q2 24: 11 Over $3 Million % Total Issuer Sector Issuance Royal Bank of Canada Financial & Real Estate $1,. 7.8% Bank of Montreal Financial & Real Estate $8. 6.2% CIBC Financial & Real Estate $7..9% CIBC Financial & Real Estate $7..% Royal Bank of Canada Financial & Real Estate $6. 4.7% Royal Bank of Canada Financial & Real Estate $6. 4.7% Bank of Nova Scotia Financial & Real Estate $. 3.9% DaimlerChrysler Canada Finance Financial & Real Estate $. 3.9% CIBC Financial & Real Estate $. 3.9% YPG Holdings Inc. Services $4. 3.% Household Financial Corp. Financial & Real Estate $4. 3.1% Total $6,8. 3.1% CORPORATE BOND ISSUANCE (Q2/4) SECTOR BREAKDOWN 2 1 MANUFACTURING (HIGH TECH) % 7 2 MANUFACTURING (OTHER).4% 3 SERVICES 12.% 4 RESOURCES 3.4% UTILITIES.3% 6 FINANCIAL & REAL ESTATE 72.6% 7 OTHER.8% SOURCE: Investment Dealers Association CORPORATE BOND ISSUANCE (Q2/3) SECTOR BREAKDOWN 1 MANUFACTURING (HIGH TECH) % 2 MANUFACTURING (OTHER).4% 7 3 SERVICES 7.1% 4 RESOURCES 3.9% UTILITIES 13.7% 6 FINANCIAL & REAL ESTATE 9.6% 7 OTHER 1.2% SOURCE: Investment Dealers Association Review of Debt New Issues and Trading - 24 Q2 9

10 The Financial & Real Estate sector s reign as leading sector in corporate issuance remains intact. Low interest rates, improving business confidence and a robust housing market have been positives for this industry. During the second quarter, the Financial & Real Estate sector issued $9.3 billion of corporate debt, accounting for 72.6% of all corporate financings. Among the top players, the Royal Bank of Canada was the leader of the pack with the single largest offering at $1 billion and total offering at $2.2 billion. ly Comparison of Corporate Bond Issuance by Sector Manufacturing High Tech Manufacturing Other Services Resources of Issues of Issues of Issues of Issues Q2/3 $. $6. 1 $1,3. 4 $7. 3 Q3/3 $4. 1 $2. 1 $46. 3 $ Q4/3 $3. 1 $ $1,83. 1 $ Q1/4 $. $8. 1 $1, $3. 4 Q2/4 $. $. 1 $1,6. 7 $43. 4 Utilities Financial & Real Estate Other of Issues of Issues of Issues Q2/3 $1, $8, $2, Q3/3 $83.9 $1, $1, Q4/3 $1, $1, $ Q1/4 $1,8. 4 $7, $2, Q2/4 $674. $9, $ Notes: 1. Highest sector issuance value bolded for each quarter 2. Services sector includes: High Tech Services and Other Services 3. Resources sector includes: Forestry, Mining and Oil & Gas Review of Debt New Issues and Trading - 24 Q2 1

11 Medium Term Notes: Issuance Medium term notes issuance declined during the second quarter, most notably in the government sector. Issuance by the corporate sector fell 9% quarter-over-quarter, but plunged 1% quarter-overquarter for governments. The corporate sector returns as the leading issuer of medium term notes. ly Comparison of Medium Term Note Issuance: Government over- of Issues over- Q2/3 $3.7 34% 37383% 44-1% 43% Q3/3 $ % 48% 64 4% 63% Q4/3 $4.4 4% 236% 62-3% 94% Q1/4 $ % 126% 6-3% 1% Q2/4 $3.9-1% -17% -8% 2% ly Comparison of Medium Term Note Issuance: Corporate over- of Issues over- Q2/3 $7.3 % 12% % 379% Q3/3 $6.3-13% 74% 1-24% 219% Q4/3 $.2-2% 24% 17-67% -11% Q1/4 $.83 11% -22% 29 71% -3% Q2/4 $.286-9% -3% 19-34% -72% ly Issuance of Medium Term Notes 8 Gross New Issues Delivered Corporate Government Review of Debt New Issues and Trading - 24 Q2 11

12 Strip Bonds: Trading Total strip bond trading was up an impressive 34% quarter-over-quarter and 1% year-over-year, underpinned by the explosive 1% quarter-over-quarter surge in Canada strips trading. In contrast, the provincial sector registered more modest growth of 1% quarter-over-quarter and 9% year-over-year. ly Comparison of Canadian Strip Bond Trading Government of Canada Strip Bonds Provincial Strip Bonds Total Strip Bonds Change over- over- over- over- over- Change Q2/3 $ % 21% $ % 37% $ % 29% Q3/3 $ % -21% $13.3-2% -8% $ % -13% Q4/3 $ % 24% $ % 4% $ % 38% Q1/4 $ % 4% $ % 12% $ % 9% Q2/4 $ % 8% $ % 9% $ % 1% Note: Trading data excludes repos, Components will not add to total as Corporate Strips are not reported ly Strip Bond Trading 2 ly Trading Government of Canada Strip Bond Trading Provincial Strip Bond Trading Review of Debt New Issues and Trading - 24 Q2 12

13 Money Market: Trading The total value of trading in all money market instruments in Q2 stood at $1.6 trillion, unchanged from the previous quarter. In line with the rising trend of supply in government treasuries, trading in Government of Canada T-Bills rose 17% year-over-year. In contrast, activity in BAs and Commercial Paper continued to decline. ly Comparison of Canadian Money Market Trading Corporate and Finance Company (Commercial) Paper Government of Canada T-Bills Bankers' Acceptances (BA s) over- over- over- over- over- over- Q uarter ($ B illions) ($ B illions) Q2/3 $ % 8% $3.1-1% -17% $7.1 % -7% Q3/3 $31.2 8% % $ % -1% $49.9-2% -6% Q4/3 $ % 18% $33.3 1% -3% $21. % -% Q1/4 $ % 23% $ % -7% $ % -% Q2/4 $33.1-3% 17% $ % -19% $ % -7% N ote: Trading data excludes repos BA's & Commercial Paper Trading Money Market Trading (ly Totals) T-bills Trading Commercial Paper Bankers' Acceptance Government of Canada T-Bills Review of Debt New Issues and Trading - 24 Q2 13

14 Summary of Bond Trading and Issuance ($ billions except where indicated otherwise) Q2 24 Q1 24 Q2 4/Q1 4 % change Q2 23 Q2 4/Q2 3 % change 24 YTD 23 YTD % change Government of Canada Bonds Trading $1,17.9 $1, % $1, % $2,37.9 $2,24. 7.% 4,44.7 3,79. 3,784.3 Issuance $13.4 $ % $ % $3. $ % Provincial Bonds Trading $93. $ % $89. 4.% $197. $ % Issuance $7.8 $ % $ % $2.4 $ % Municipal Bonds Trading $2.9 $3.1-6.% $ % $6. $ % Issuance $.7 $.7-1.% $ % $1.4 $ % Corporate Bonds Trading $2.9 $ % $ % $7.9 $ % Issuance $12.8 $ % $ $26.2 $ % Total Bonds Trading $1,293.2 $1, % $1, % $2,619.3 $2, % 4,883. 4, ,21. Issuance $34.7 $ % $ % $78. $ % Note: Trading data excludes repos

15 CALGARY Suite 23 3 Fourth Ave. S.W. Calgary, Alberta T2P J1 Tel.: (43) Fax: (43) HALIFAX TD Centre, Suite Barrington St. Halifax, Nova Scotia B3J 3K9 Tel.: (92) Fax: (92) MONTRÉAL Bureau Place Ville Marie Montréal, Québec H3B 4R4 Tel.: (14) Fax: (14) TORONTO Suite King St. W. Toronto, Ontario MH 3T9 Tel.: (416) Fax: (416) Sherry Hum Research Analyst shum@ida.ca VANCOUVER Suite 132 P.O. Box West Georgia St. Vancouver, BC V6B 4N9 Tel.: (64) Fax: (64) Ce rapport est aussi disponible en français sur demande. The Investment Dealers Association of Canada is the national self-regulatory organization and representative of the securities industry. The Association s mission is to protect investors and enhance the efficiency and competitiveness of the Canadian capital markets.