Review of Debt New Issues and Trading Second 003 INVESTMENT DEALERS ASSOCIATION OF CANADA www.ida.ca Activity Grows in Q 003 September 003 Monetary conditions were volatile in the second quarter. The Bank of Canada began the quarter with a 5 bps increase in its target for the overnight rate on April 15 th, amidst widespread expectations of further tightening to come. These expectations shifted as the quarter unfolded, however, on news of unexpected weakness in the US economy, concerns about the economic impact of SARS, and strength in the Canadian dollar. The Bank left its target rate unchanged in June and began to condition the market easing to follow in the third quarter. These volatile conditions, together with the removal of global uncertainties which had dampened activity in the first quarter, provided strong underpinnings to fixed income trading in the quarter. Bond issuance in the government sector continued the flat line pattern it had exhibited over the last year, based on lower financial requirements, while corporate bond issuance jumped sharply on improved financing conditions and credit spreads. Money market activity continued to slide, particularly in the corporate market as some issuance shifted to MTNs and as keyborrowing sectors such as oil and gas were increasingly flush with cash. Canadian YieldtoMaturity Curve ly Comparison Yield.0% 5.5% 5.0%.5%.0% 3.5% 3.0%.5%.0% 1.5% 1.0% 0 1 3 5 7 8 9 Term to Maturity (s) avg. Q/0 avg. Q1/03 avg. Q/03 Note: Averages 3 endofmonth values for each quarter Source: Bank of Canada
Canadian Interest Rates The Bank of Canada raised its target for the overnight rate by 5 bps during the first half of the second quarter, but left the target unchanged on its June announcement. The yield curve flattened during the quarter with shortterm interest rates up 1 bps and longterm rates down 5 bps, bringing the over year Canada average to.98 percent. Spreads between corporate and government bond rates dropped for both long and shortterm securities. Longterm spreads narrowed 30 bps while the shortterm spread narrowed by only 11 bps. Historical ShortTerm Interest Rates Bond Yields 9% 8% 7% % 5% % 3% % 1% 1995 199 1997 1998 1999 000 001 00 003 130 10 1 0 90 80 70 0 50 0 30 0 0 Spread (bps) 1Month Tbill 1Month Corporate 1Month Spread Note: 1Month Corporate = Prime Corporate Paper Rate Source: Bank of Canada Bond Yields Historical LongTerm Interest Rates 11% % 9% 8% 7% % 5% % 1995 199 1997 1998 1999 000 001 00 003 10 150 10 130 10 1 0 90 80 70 0 50 0 Spread (bps) LongTerm Canadas LongTerm Corporates LongTerm Spread Notes: LongTerm Canadas = Government of Canada marketable bonds, average yield over years LongTerm Corporates = Average Weighted Yield (Scotia Capital Inc.) All Corporates LongTerm, over years Source: Bank of Canada April June 003
Government of Canada Bonds: Trading and Issuance With the unexpected strength in the Canadian dollar during the quarter and falling inflation, bond trading volumes surged. Government of Canada bond trading reached $1.1 trillion in volume, percent above the same quarter last year. At the same time, strengthening economic growth during the previous quarter and lower Government financing requirements saw quarterly issuance drop 3 percent from the Q 00 level. ly Comparison of Government of Canada Bond Trading over over Q/0 $9.1 % 3% Q3/0 $98.7 % 1% Q/0 $917. 7% 7% Q1/03 $1,0.5 1% 7% Q/03 $1,17.1 1% % Note: Excludes repos ly Comparison of Government of Canada Bond Issuance over over of Issues over over Q/0 $1.83 1% 1% 15 5% 5% Q3/0 $1.11 5% 7% 39 10% 179% Q/0 $13.58 % % 30 3% 7% Q1/03 $13.91 3% % 9 3% % Q/03 $1.381 3% 3% 31 7% 7% 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 0 1,500 Gross New Issues Delivered 18 1 1 1 8 1,00 1,300 1,00 1,0 1,000 900 800 700 ly Trading 199 1995 199 1997 1998 1999 000 001 00 003 00 Gross Issuance Total Bond Trading April June 003 3
Government of Canada Real Return Bonds: Trading and Total Outstanding Canadian CPI inflation dropped sharply during the second quarter, raising concerns in the market of deflation. As a result of lower inflation expectations, Canadian realreturn bonds trading during the quarter suffered a sharp 15 percent drop following four consecutive quarters of increased activity. Net issuance of the realreturn bonds increased.5 percent during the quarter. ly Comparison of Government of Canada Real Return Bonds Trading over over Q/0 $.5 71% 35% Q3/0 $3. 9% 8% Q/0 $.3 33% 03% Q1/03 $5.9 37% 301% Q/03 $5.0 15% 98% ly Comparison of Government of Canada Real Return Bonds Total Outstanding over over Q/0 $15..7%.1% Q3/0 $15.5.0% 9.9% Q/0 $15.9.%.0% Q1/03 $1. 1.9% 9.% Q/03 $1..5% 9.% Total ly Canada Real Return Bond Outstandings and Trading 0 Gross New Issues Delivered 18 1 1 1 8 5 3 1 ly Trading 1999 000 001 00 003 Total outstandings Total Bond Trading April June 003
Provincial Bonds: Trading and Issuance Total trading in provincial bonds was up 9 percent compared to the same quarter a year earlier. Ontario and Quebec bonds were particularly active and accounted for 51 percent and 35 percent of the total respectively. In line with lower provincial financial requirements total provincial borrowing was down 1 percent compared to the same quarter last year. ly Comparison of Provincial Bond Trading over over Q/0 $8.1 3% 3% Q3/0 $79.0 % 7% Q/0 $7.0 % 7% Q1/03 $9. 5% 9% Q/03 $89.5 3% 9% Note: Excludes repos ly Comparison of Provincial Bond Issuance over over of Issues over over Q/0 $.831 3% 9% 7 1% 8% Q3/0 $5.13 % % 31% 35% Q/0 $3.755 7% 18% 33 8% 3% Q1/03 $5.97 % % 5 97% % Q/03 $.033 % 1% 1 37% 39% Note: Total Gross New Issues Delivered, including Crown Corporations, par value Total ly Provincial Bond Gross Issuance and Trading 0 Gross New Issues Delivered 8 90 80 70 0 50 ly Trading 199 1995 199 1997 1998 1999 000 001 00 003 0 Gross Issuance Total Bond Trading April June 003 5
Corporate Bonds: Trading and Issuance Increased corporate profitability, a narrowing of spreads, and the removal of uncertainties from the market following the quick Iraq war resolution, all helped to support the Canadian corporate bond market. Trading value was up 8 percent compared to the second quarter last year. In addition, corporate issuance was up sharply, 80 percent above the same quarter a year ago. Toronto Dominion Bank and the GE Capital were the most significant corporate issuers offering $0.9B and $1.35B respectively. The Financial & Real Estate sector was the most active sector, with $8.8B in issuance, representing 1 percent of all corporate financings during the quarter. ly Comparison of Corporate Bond Trading over over Q/0 $8.5 11% 15% Q3/0 $8.5 0% 17% Q/0 $38. 3% 3% Q1/03 $33.3 13% % Q/03 $3. 9% 8% Note: Trading data excludes repos ly Comparison of Corporate Bond Issuance over over of Issues over over Q/0 $8.031 1% 35% 51 15% 3% Q3/0 $5.787 8% 1% 1% 1% Q/0 $11.150 93% 3% 75 70% 3% Q1/03 $11.9 3% 5% 17% 3% Q/03 $1.80 % 80% 85 37% 7% Note: Issuance data: Total Gross New Issues Delivered, par value Total ly Corporate Bond Gross Issuance and Trading Gross New Issues Delivered 1 1 8 0 35 30 5 0 15 ly Trading 199 1995 199 1997 1998 1999 000 001 00 003 5 Gross Issuance Total Bond Trading April June 003
Sector Breakdown of Corporate Bond Issuance Top Corporate Bond Issues for Q 003: 1 Over $300 Million % Total Issuer Sector Issuance Toronto Dominion Bank Financial & Real Estate $ 900.00.7% 55 School Board Trust Other $ 891.00.1% GE Capital Canada Funding Co Financial & Real Estate $ 79.7 5.% GE Capital Canada Funding Co Financial & Real Estate $ 00.00.18% Ontrea Inc. Other $ 00.00.18% Bank of Nova Scotia Financial & Real Estate $ 500.00 3.8% Ford Credit Canada Limited Financial & Real Estate $ 500.00 3.8% Hydro One Inc. Utilities $ 500.00 3.8% OMERS Realty Corp. Financial & Real Estate $ 500.00 3.8% Greater Toronto Airport Auth. Services $ 00.00.79% Great Lakes Power Limited Utilities $ 38.00.8% Greater Toronto Airport Auth. Services $ 375.00.1% Alliance Pipeline Limited Part Resources $ 300.00.09% DaimlerChrysler Canada Finance Financial & Real Estate $ 300.00.09% Total $7,99.7 5.% Corporate Bond Issuance. Sector Breakdown. Corporate Bond Issuance (Q/03) Sector Breakdown Corporate Bond Issuance (Q/0) Sector Breakdown Services 7% Manuf act uring Ot her 0% Manuf act uring High Tech 0% Resources % Ot her 1% Utilities 1% Financial & Real Est at e 1% Services 1% Manuf act uring Ot her 1% Manuf act uring High Tech 0% Ot her 3% Resources 7% Utilities 1% Financial & Real Est at e 7% April June 003 7
ly Comparison of Corporate Bond Issuance by Sector Manufacturing High Tech Manufacturing Other Services Resources Q/0 $0.0 0 $0.0 1 $1,30. 7 $55.0 Q3/0 $0.0 0 $0.0 0 $11.5 $50.0 Q/0 $0.0 0 $0.0 1 $0.5 $888. 9 Q1/03 $55.0 1 $0.0 1 $1,50.0 5 $191.0 3 Q/03 $0.0 0 $0.0 0 $1,030.0 $570.0 3 Utilities Financial & Real Estate Other Q/0 $89. 1 $5,8.7 37 $07.0 3 Q3/0 $1,030.0 7 $,39.5 33 $0.0 0 Q/0 $1,75.0 7 $5,73.0 $,51.5 8 Q1/03 $3,591. 1 $,13.0 3 $17.8 Q/03 $1,979.0 8 $8,87. 0 $,073.0 Notes: 1. Highest sector issuance value bolded for each quarter. Services sector includes: High Tech Services and Other Services 3. Resources sector includes: Forestry, Mining and Oil & Gas April June 003 8
Strip Bonds: Trading Government of Canada and provincial strip bond trading activity was up 9 percent and 1 percent respectively on a yearoveryear basis. 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 over Q/0 $13.58 % 9% $1.73 17% % $.753 13% 7% Q3/0 $11.11 1% % $1.189 11% 3% $.53 1% 18% Q/0 $.971 19% 7% $1.030 % 15% $3.570 1% 5% Q1/03 $8.77 5% 51% $1.7 39% 17% $5.98 % 18% Q/03 $1.381 98% 9% $17.391 % 1% $3.33 3% 13% Note: Trading data excludes repos 0 ly Strip Bond Trading 18 1 Strip bonds traded 1 1 8 001 00 003 Government of Canada Strip Bond Trading Provincial Strip Bond Trading April June 003 9
Money Market: Trading The total value of trading in all money market instruments was down 7 percent compared to the same quarter a year earlier. Tbill trading was up 8 percent while trading in BA s and Commercial Paper was down 17 percent and 7 percent respectively, reflecting lower corporate issuance. ly Comparison of Canadian Money Market Trading Corporate and Finance Company (Commercial) Paper Government of Canada TBills Bankers' Acceptances (BA s) over over over over over over Q/0 $.5 % 3% $37.3 3% 3% $53.5 9% % Q3/0 $9. 1% 30% $30.0 17% 8% $5.7 3% 1% Q/0 $9.1 0.1% 17% $311.5 % 1% $59.3 % 9% Q1/03 $80.9 5% % $309.0 1% 18% $507. 8% 15% Q/03 $8. % 8% $303. % 17% $507. 0% 7% Note: Trading data excludes repos 1,00 Money Market Trading (ly Totals) 800 TBill Trading 1,0 1,000 900 800 700 00 500 00 300 00 0 700 00 500 00 300 00 0 BA's & Commercial Paper Trading ($ Billions 199 1995 199 1997 1998 1999 000 001 00 003 Government of Canada TBills Bankers' Acceptances Commercial Paper April June 003
INVESTMENT DEALERS ASSOCIATION OF CANADA www.ida.ca CALGARY Suite 300 355 Fourth Ave. S.W. Calgary, Alberta TP 0J1 Tel.: (03) 393 Fax: (03) 503 HALIFAX TD Centre, Suite 10 1791 Barrington St. Halifax, Nova Scotia B3J 3K9 Tel.: (90) 38800 Fax: (90) 309 MONTRÉAL Bureau 80 1 Place Ville Marie Montréal, Québec H3B R Tel.: (51) 87885 Fax: (51) 878380 TORONTO Suite 100 11 King St. W. Toronto, Ontario M5H 3T9 Tel.: (1) 3133 Fax: (1) 30753 VANCOUVER Suite 135 P.O. Box 111 50 West Georgia St. Vancouver, BC VB N9 Tel.: (0) 83 Fax: (0) 83391 Jacob Rozenfeld, Research Analyst Capital Markets Department jrozenfeld@ida.ca Ce rapport est aussi disponible en français sur demande. The Investment Dealers Association of Canada is the national selfregulatory 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.