Review of Debt New Issues & Trading: Fixed in the Fast Lane QUARTER 2005 HIGHLIGHTS FEBRUARY 2006

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Q4 FOURTH Review of Debt New Issues & Trading: Fixed in the Fast Lane QUARTER 2005 HIGHLIGHTS FEBRUARY 2006 Fixed income market entrenched on the fast track in 2005 despite Q4 speed bump Debt trading

1 Q4 FOURTH Review of Debt New Issues & Trading: Fixed in the Fast Lane QUARTER 2005 HIGHLIGHTS FEBRUARY 2006 Fixed income market entrenched on the fast track in 2005 despite Q4 speed bump Debt trading zoomed to record $5.9 trillion in 2005, breaking 2004 record by 14.6% Financings eased to $151.5 billion in 2005, no record but in record territory Corporates enjoy blockbuster year, low rates help fuel issuance to all-time high in 2005 Government issuance down in Q4 and 2005

2 Q Summary of Debt Trading & New Issuance Q SUMMARY OF DEBT TRADING & NEW ISSUANCE Q4 05 QOQ YOY 2005/ /03 ($ Billions) % chg % chg % chg % chg TOTAL Debt Trading Debt Issuance Government of Canada Bonds Trading Issuance Provincial Bonds Trading Issuance Municipal Bonds Trading Issuance Corporate Bonds Trading Issuance Note: QOQ = quarter-over-quarter YOY = year-over-year YTD = year-to-date IDA Q4 & 2005 REVIEW OF DEBT NEW ISSUES AND TRADING: FIXED IN THE FAST LANE 2

3 Q4 and 2005 Debt Markets: Fixed in the Fast Lane It was another year in the fast lane for Canada s fixed income market in On the trading front, activity accelerated to a new high at $5.9 trillion in 2005, zooming past the previous record of $5.1 trillion in 2004 by 14.6%. On the financing side, debt issuance totaled a lofty $151.5 billion last year, down 8.8% from the record $166.1 billion set in While financings didn t break any records last year, issuance was impressive and certainly in record terrain. Of course, the road to last year s grand finish was not without a speed bump. Activity hit a soft patch in the fourth quarter with financing and trading down 8.3% and 1.4% quarter-over-quarter respectively. Despite the shift to a slower gear in the final stretch, it didn t stop the Canadian debt market from delivering an overall fantastic performance in What s the winning formula behind the fixed income market s dynamic year? In a nutshell, low interest rates. The relatively low interest rate environment throughout 2005 was nirvana for the debt market. Despite the Bank of Canada s monetary tightening in the second half of last year, it did little to incite higher longer-term bond yields. Instead, the longer end of the yield curve continued to flatten, keeping credit conditions lodged in the favorable camp and conducive for borrowing. In addition, narrow credit spreads was another important element in the equation. The healthy economic backdrop coupled with Corporate Canada s improving profit picture helped keep credit spreads rather tight in 2005 a big positive for the fixed income market. IDA Q4 & 2005 REVIEW OF DEBT NEW ISSUES AND TRADING: FIXED IN THE FAST LANE 3

4 Total Quarterly Corporate Bond Gross Issuance & Trading Gross New Issues Delivered ($ Billions) Gross Issuance Corporate Bonds Total Bond Trading Source: Investment Dealers Association It was nothing short of a blockbuster year for Canada s corporate bond market -- again. Corporate financings totaled $19.8 billion in 108 issues in the fourth quarter, an impressive 59.3% increase in value quarter-over-quarter. For the year as a whole, corporate issuance posted a record $64.9 billion in eclipsing the previous high of $61 billion set in 2004 by 6.4%. Undoubtedly, the corporate bond market was a prime beneficiary of the low interest rate climate. However, another crucial force behind the corporate financing blitz last year was the breakout of the Maple bond market foreign-issued Canadian dollar denominated bonds. Maple bonds flourished last year thanks to the 2005 Federal Budget scrapping of the Foreign Property Rule (FPR) which restricted foreign investment on Canadian non-taxable investors to just 30% Quarterly Trading ($ Billions) The FPR abolishment was not only a huge win for Bay Street and Main Street, but a dramatic breakthrough for Canada s capital markets. The FPR elimination immediately opened the floodgates to Maples as eager investors wasted no time in taking advantage of new investment capital and opportunities. Last year, foreign debt issuers in Canada accounted for about one-fifth of the total corporate financings with the U.S. leading the global borrowing pack. The FPR removal also boosted the international profile and appeal of the Canadian debt market. Encouragingly, the rapid rise in Maples last year highlights the growing popularity and importance of the Canadian bond market on the world financing stage. From the perspective of the global issuer, the Canadian market represents a new, competitive investment base to tap. From the perspective of the Canadian investor, Maple bonds offer portfolio diversification. Looking ahead, the Maple market will likely continue to expand in 2006 given the budding attraction between global borrowers and Canadian investors. Meanwhile, it was also the case of less is more for Canada s corporate bond market in Although there were 2.1% fewer deals on the table last year, the total dollar value was 6.4% higher than In particular, the notable increase in high-end financings $1 million plus played a major role in driving corporate issuance to record territory last year. There were 5 high-end corporate bonds totaling $5.5 million in 2005 compared to the lone $1 million issue by RBC Dominion Securities back in The financial sector cornered the highend market last year with CIBC holding down the top spot with a $1.3 million corporate issue. IDA Q4 & 2005 REVIEW OF DEBT NEW ISSUES AND TRADING: FIXED IN THE FAST LANE 4

5 Government, Provincial & Municipal Bonds Gross Government of Canada bond issuance fell to $6.7 billion in the fourth quarter, a drop of 58.6% quarter-over-quarter. The quarter was partly dragged down by seasonal distortions from the government s issuance cycle (certain bonds are issued only in the spring and autumn). For the year, activity was also down with gross Government of Canada issuance at $53.1 billion in 2005, down 13.7% from Why the reduced government borrowing? A smaller buyback operation, handsome fiscal surplus and the government s commitment towards lowering their fixed-rate share of debt from 2/3 to 60% were major factors behind the decline. Provincial issuance was also on the downtrend in Enhanced federal transfers, improving budgetary positions and revenues from a solid economy helped cut provincial and municipal borrowings last year. In 2005, provincial financings totaled $29.7 billion, down 24.8% from the $39.6 billion issuance in Municipals also followed a similar trajectory with issuance at $3.7 billion in 2005, down 6.4% from the $3.9 billion financings in Last year, the City of Toronto was the largest municipal issuer with a total of $500 million in public transit related financings. Total Quarterly Provincial Bond Gross Issuance & Trading On the trading front, there was a pronounced pick up last year, particularly in provincials and municipals. Municipal bond trading soared to a record $14.4 billion in 2005 (up 21% from 2004) while provincial trading topped an all-time high of $498.3 billion (up 26% from 2004). The trading surge last year was partly attributable to the emergence of some new entrants on the playing field. The growing presence of aggressive non-traditional managers -- such as hedge funds -- and active European and Asian players on the scene not only altered the landscape, but were an influential market force. Money Markets Investors gravitated to the buoyant debt and equity markets last year, but they also got some action in the money markets. Noteworthy was the rebound in foreign activity in the Canadian money markets last year. According to Statistics Canada, foreign investment in Canadian money markets totaled $446 million in 2005, snapping a 2- year disinvestment trend by non-residents. Albeit relatively small in value, the foreign investment reversal is nonetheless welcome news to the Canadian money markets. Overall trading in Government T-Bills totaled $1.5 trillion in 2005, up 9.7% from Similarly, trading in BA s was $1.2 trillion in 2005, up 14.9% over In contrast, trading in commercial paper scaled back to $1.1 trillion in 2005, a drop of 39.2% from the year before. Gross New Issues Delivered ($ Billions) Gross Issuance Total Bond Trading Source: Investment Dealers Association Quarterly Trading ($ Billions) Sherry Hum Research Analyst, Capital Markets shum@ida.ca Ian Russell Senior Vice President Industry Relations & Representation irussell@ida.ca IDA Q4 & 2005 REVIEW OF DEBT NEW ISSUES AND TRADING: FIXED IN THE FAST LANE 5

6 Government Bonds Trading ($ Billions) Q4 05 QOQ YOY 2005/ /03 ($ Billions) % Chg % Chg % Chg % Chg Government of Canada Bonds Canada Real Return Bonds Provincial Bonds Municipal Bonds Issuance ($ Billions) Government of Canada Bonds Provincial Bonds Municipal Bonds Number of Issues Government of Canada Bonds Provincial Bonds Municipal Bonds IDA Q4 & 2005 REVIEW OF DEBT NEW ISSUES AND TRADING: FIXED IN THE FAST LANE 6

7 Corporate Bonds CORPORATE BOND ISSUANCE - SECTOR BREAKDOWN (VALUE) % of Total Q4 05 QOQ YOY Corporate ($ Millions) % Chg % Chg Bond Issuance Manufacturing Manufacturing (Other) Services* 1, Resources** Utilities 1, Financial & Real Estate 10, Other 4, *Services = High Tech Services and Other Services **Resources = Forestry, Mining and Oil & Gas CORPORATE BONDS QOQ YOY 2005/ /03 Q4 05 % Chg % Chg % Chg % Chg TOP CORPORATE BOND ISSUES IN Q4 05 Issue Value % of Total ($ Millions) Issuance Value Trading ($ Billions) Issuance ($ Billions) Number of New Issues RBC Capital Trust 1, Toronto Dominion Bank CARDS II Trust CARDS II Trust IDA Q4 & 2005 REVIEW OF DEBT NEW ISSUES AND TRADING: FIXED IN THE FAST LANE 7

8 Strip Bond & Money Market Trading Q4 05 QOQ YOY 2005/ /03 ($ Billions) % Chg % Chg % Chg % Chg Strip Bonds: Trading Provincial Government of Canada Total Money Market Trading Government of Canada T-Bills Bankers' Acceptance (BA's) Corporate & Finance Company (commercial paper) IDA Q4 & 2005 REVIEW OF DEBT NEW ISSUES AND TRADING: FIXED IN THE FAST LANE 8

IDA - Industry Association. Review of Debt New Issues & Trading: Getting Off on a High QUARTER 2006 HIGHLIGHTS JUNE 2006

IDA - Industry Association. Review of Debt New Issues & Trading: Getting Off on a High QUARTER 2006 HIGHLIGHTS JUNE 2006 IDA - Industry Association Q1 FIRST Review of Debt New Issues & Trading: Getting Off on a High QUARTER 2006 HIGHLIGHTS JUNE 2006 Fixed income market kicked off 2006 on a high trading and financing in lofty