Review of Debt New Issues and Trading First Quarter 2 Debt Markets: Shifting Gears? This Quarter s Highlights Not surprisingly, the Canadian bond market shifted to a slower gear in Q1 2 following a record pace in the fourth quarter and year. Total bond issuance was $38. billion, down 21% quarter-over-quarter and off 14% compared to the same quarter a year ago. Total bond trading slipped to $1.46 trillion in the first quarter, down a mere 1.4% from the robust fourth quarter. On a yearly basis, total bond trading was up 3.4% from 24. Federal bond trading was almost unchanged in the first quarter at $1.29 trillion, off just.7% from the robust fourth quarter and up 3% year-over-year. Government of Canada gross bond issuance was $16.1 billion, unchanged from the fourth quarter. However, Government of Canada issuance was down.7% year-over-year. Trading in corporate bonds stood at $64.1 billion, down 3.3% quarter-over-quarter, but up 16.1% compared to the same quarter a year ago. Corporate bond financings totaled $13. billion in the first quarter, down 42.9% quarter-over-quarter and off.4% yearover-year. Provincial bond issuance stood at $8.7 billion in the first quarter, a decline of 11.4% from the fourth quarter and 31.8% from the same quarter a year ago. Money market trading climbed to $1.24 billion in the first quarter, up 8% quarter-over-quarter and 12% compared to the same quarter in 24. Investment Dealers Association of Canada May 2
Q1 2 Debt Markets: Shifting Gears? No sizzle and no fizzle. That pretty much captured the tone of the debt market in the first quarter as activity shifted to a slower gear. Indeed, bond issuance scaled back to just $38. billion in the first quarter, a decrease of 21% from the fourth quarter and 14% from the same period last year. Debt trading, however, was more upbeat, off only a modest 1.4% from the red hot fourth quarter. Nevertheless, the reduced activity in the first quarter hardly comes as a big surprise. Following on the heels of a record fourth quarter in debt issuance and trading is a hard act to match, let alone beat. However, put into perspective, the first quarter s slowdown isn t too worrisome. After all, debt trading and issuance activity continued to remain at or above trend levels. On the financing front, bond issuance definitely took a big step back in the quarter. Federal, provincial, municipal and corporate borrowings were relatively low key, with debt issuance down on a quarterly and yearly basis. Barring the base comparison distortion, debt financings in 2 may not be as robust as last year despite the still favorable interest rate backdrop. For the corporate sector, Corporate Canada will likely ease into a consolidation mode following a banner year of financings and M&A activity. With corporate balance sheets now in better shape, this could help reduce the need for corporations to issue debt this year. Meanwhile, municipal and provincial financings may also cool in the coming months after some sizeable financing projects last year. Lastly, with the Federal Government sticking to its debt reduction strategy, this should also translate into fewer federal bond financings in the pipeline. On the trading front, investors remained active in the fixed income market -- total bond trading was off just 1.4% quarter-over-quarter but up 3.4% from the same period a year ago. While the decline was broad-based, interest remained particularly high in Government of Canada bonds: trading was down a mere.7% from the vigorous fourth quarter and up 3.1% from the same quarter a year ago. Corporate bond trading in the first quarter was also slightly lower, down 3.3% quarter-over-quarter but up an impressive 16% from the same quarter last year. In contrast, municipal bonds suffered the steepest setback with trading down 19% quarter-over-quarter and 7% yearover-year. The Bank of Canada (BoC) isn t on a monetary tightening path like the Fed yet. Moderate inflation and the recent softening in economic data have kept the BoC on the sidelines this quarter and the overnight rate unchanged at a low 2.%. Canada-US spreads turned negative (-24 bps) for short rates and narrowed further (2 bps) for long rates in the first quarter. The ongoing spread narrowing is clearly reflective of US rates ramping up at a faster pace than Canadian yields. The difference in monetary policy stances between the Fed and the BoC suggests that the Canadian yield curve may be steeper (less flat) than the US curve in the near term. However, market expectations for tighter credit conditions are growing, with a possible rate hike by the BoC in the second half of this year. Canadian and US Short and Long Yield Spreads 2 2 Spread (bps) 1 1 - -1 2 21 22 23 24 2 Canada-US 3-month T-bill Canada-US 1 Year Government Bond Yield Review of Debt New Issues and Trading - 2 Q1 2
Canadian Interest Rates In contrast with the Fed s steady pace of rate hikes, the BoC stood pat in the first quarter. Canada s overnight rate remained at a mere 2.%. The BoC had little reason to tighten credit conditions in the quarter given the softening economic data and contained inflationary pressures. 2 kicked off the year with Canadian short rates hardly budging in the quarter. Short spreads remained anchored at 12 bps in the first quarter. In contrast with short rates, long rates drifted lower in the quarter. The 1-year government yield fell to 4.7% while Corporates edged down to.73%. Historical Short-Term Interest Rates 1 12 Bond Yields (%) 8 6 4 2 1 8 6 4 2 Spread (bps) 199 1996 1997 2 21 22 23 24 2 1-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 (%) 1 8 6 1 1 Spread (bps) 4 199 1996 1997 2 21 22 23 24 2 Long Term Canadas Long Term Corporates Spread Source: Bank of Canada 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 - 2 Q1 3
Government of Canada Bonds: Trading and Issuance Investor interest in Government bonds continued on a high note in 2. Total trading in Government of Canada and Federal Crown Corporation bonds hit a 7-year high at $1.29 trillion in the first quarter, up % quarter-over-quarter and 9% over the same period a year ago. Total government debt financings stood at $16.1 billion in the first quarter in 23 issues, unchanged in value from the fourth quarter. However, compared with the same period a year ago, total Government bond issuance was down 6% in value, reflective of the Government s debt reduction strategy. Quarterly Comparison of Government of Canada Bond Trading Change Change Quarter Quarter Year Q1/4 $1,187. 12% 1% Q2/4 $1,17.9-1% % Q3/4 $1,31.8-12% -9% Q4/4 $1,229.8 19% 16% Q1/ $1,288.4 % 9% Note: Excludes repos Quarter- Year- Value over- over- Quarterly Comparison of Government of Canada Bond Issuance Change Change Change Change Quarter- Year- Number Quarter- Year- Value over- over- of over- over- Quarter Quarter Year Issues Quarter Year Q1/4 $17.1 3% 22% 29-24% % Q2/4 $13.7-2% -% 33 14% 6% Q3/4 $14.7 7% -9% 16-2% -3% Q4/4 $16.1 1% -3% 32 1% -18% Q1/ $16.1 % -6% 23-28% -23% Note: Government of Canada Direct and Guaranteed Bonds, including Crown Corporations, total Gross New Issues Delivered, par value Total Quarterly Canada Bond Gross Issuance and Trading 2 1 Gross New Issues Delivered 1 1 12 9 6 Quarterly Trading 199 1996 1997 2 21 22 23 24 2 Gross Issuance Total Bond Trading Review of Debt New Issues and Trading - 2 Q1 4
Government of Canada Real Return Bonds: Trading and Total Outstanding Trading in Canada Real Return bonds (RRBs) stood at $4.2 billion in the first quarter, up 4% quarter-over-quarter, but down 19% compared to the same period in 24. Meanwhile, the Government s outstanding stock of RRBs ballooned to $19. billion in the first quarter, up 1.6% quarter-over-quarter and 7.9% compared to the same quarter a year ago. Quarterly Comparison of Government of Canada Real Return Bonds Trading Change Change Quarter Quarter Year Q1/4 $.2 13% -13% Q2/4 $4.8-7% -3% Q3/4 $3.3-31% -9% Q4/4 $4. 22% -13% Q1/ $4.2 4% -19% Quarterly Comparison of Government of Canada Real Return Bonds Total Outstanding Change Change Quarter- Quarter- Year- Value over- over- Year- Value over- over- ($ Quarter Year Quarter Billions) Q1/4 $17.6 1.7% 8.6% Q2/4 $18. 2.3% 8.4% Q3/4 $18.3 1.7% 8.3% Q4/4 $18.7 2.2% 8.1% Q1/ $19. 1.6% 7.9% Total Quarterly Canada Real Return Bond Gross Outstandings & Trading Gross New Issues Delivered 2 1 1 6 4 3 2 Quarterly Trading 1 2 21 22 23 24 2 Total Outstandings Total Bond Trading Review of Debt New Issues and Trading - 2 Q1
Provincial Bonds: Trading and Issuance The popularity of provincial bonds from last year extended into 2 with trading at a lofty $1.3 billion in the first quarter. While trading was down 7% from the peak fourth quarter, activity was up 1% from the same quarter a year ago and well above the $99 billion quarterly average in 24. Provincial bond financings fell back to $8.7 billion in 6 issues, off 11% quarter-over-quarter in value and down 32% from the same quarter a year ago. Meanwhile, Ontario was the largest provincial issuer in the quarter. The largest single deal came from the Ontario Strategic Infrastructure Financing Authority with a $6 million issue. Quarterly Comparison of Provincial Bond Trading Change Change Value over- over- Quarter Quarter Year Q1/4 $14. 22% 12% Q2/4 $93. -1% % Q3/4 $86. -8% 34% Q4/4 $113.6 31% 34% Q1/ $1.3-7% 1% Note: Excludes repos Quarter- Year- Quarterly Comparison of Provincial Bond Issuance Change Change Change Change Value Quarter- Year- Number Quarter- Year- over- over- of over- over- Quarter Quarter Year Issues Quarter Year Q1/4 $12.7 41% 132% 8 6% 29% Q2/4 $9.3-27% 4% 9 6% 19% Q3/4 $8.2-12% 37% 49-46% -2% Q4/4 $9.8 19% 8% 7 43% -13% Q1/ $8.7-11% -32% 6-2% -34% Note: Total Gross New Issues Delivered, including Crown Corporations, par value Total Quarterly Provincial Bond Gross Issuance & Trading 1 12 Gross New Issues Delivered 12 9 6 3 1 8 6 4 Quarterly Trading 199 1996 1997 2 21 22 23 24 2 Gross Issuance Total Bond Trading Review of Debt New Issues and Trading - 2 Q1 6
Municipal Bonds: Trading and Issuance The municipal bond market got off to a rough start in 2. Trading in municipal bonds tapered off in the first quarter to $2.9 billion, down 19% quarter-over-quarter and 6% from the same quarter in 24. Municipal financings also cooled in the period. Financings in the first quarter totaled a meager $.23 billion, down 86% quarter-over-quarter and 7% compared to the same quarter in 24. With only 44 municipal issues less than half of the fourth quarter last year -- this was the lowest number of deals on record since 1996. Quarterly Comparison of Municipal Bond Trading Change Change Quarter- Year- Value over- over- Quarter Quarter Year Q1/4 $3.1-32% 31% Q2/4 $2.9-6% -3% Q3/4 $2.4-17% -28% Q4/4 $3.6 49% -21% Q1/ $2.9-19% -6% Note: Excludes repos Quarterly Comparison of Municipal Bond Issuance Change Change Change Change Quarter- Year- Number Quarter- Year- Value over- over- of over- over- Quarter Quarter Year Issues Quarter Year Q1/4 $.8-49% 29% 72-37% 36% Q2/4 $.6-1% -7% 1-29% -24% Q3/4 $.9 39% -23% 67 31% -4% Q4/4 $1.7 86% 12% 112 67% -3% Q1/ $.2-86% -7% 44-61% -39% Note: Total Gross New Issues Delivered, par value Total Quarterly Municipal Bond Gross Issuance & Trading 2. Gross New Issues Delivered 2. 1. 1... 4 3 2 1 Quarterly Trading 199 1996 1997 2 21 22 23 24 2 Gross Issuance Total Bond Trading Review of Debt New Issues and Trading - 2 Q1 7
Corporate Bonds: Trading and Issuance Investor interest in corporate bonds remained high with total trading at $33.2 billion in the first quarter -- down 7% from the peak fourth quarter, but up 4% over the same period a year ago. First quarter corporate financings dipped to just $13. billion in 76 issues, down 43% quarter-overquarter in value and off % from the same period in 24. While financings this quarter have slowed substantially from the peak fourth quarter, activity was still above the $11.7 billion quarterly average posted during 21-24. Quarterly Comparison of Corporate Bond Trading Change Change Quarter- Year- Value over- over- Quarter Quarter Year Q1/4 $32. -6% -4% Q2/4 $2.9-19% -29% Q3/4 $28.6 11% -1% Q4/4 $3.8 2% % Q1/ $33.2-7% 4% Note: Trading data excludes repos Quarterly Comparison of Corporate Bond Issuance Change Change Change Change Quarter- Year- Number Quarter- Year- Value over- over- of over- over- Quarter Quarter Year Issues Quarter Year Q1/4 $14.3-3% 2% 9 13% 1% Q2/4 $12.7-11% -2% 86-9% 4% Q3/4 $11.3-11% -14% 82 -% -13% Q4/4 $23.7 11% 6% 1 83% 79% Q1/ $13. -43% -% 76-49% -2% Note: Issuance data: Total Gross New Issues Delivered, par value Total Quarterly Corporate Bond Gross Issuance & Trading 2 4 Gross New Issues Delivered 2 1 1 3 3 2 2 1 1 Quarterly Trading 199 1996 1997 2 21 22 23 24 2 Gross Issuance Total Bond Trading Review of Debt New Issues and Trading - 2 Q1 8
Sector Breakdown of Corporate Bond Issues Top Corporate Bond Issues for Q1 2: 8 Over $ Million Issuer Sector Value ($ millions) % Total Issuance Value Bank of Nova Scotia Financial & Real Estate $1,. 7.4% Genesis Trust Financial & Real Estate $1,. 7.4% Bell Canada Utilities $7..2% GE Capital Canada Funding Co Financial & Real Estate $6. 4.4% CIBC Financial & Real Estate $8. 4.3% Bank of Montreal Financial & Real Estate $. 3.7% CARDS II Trust Other $. 3.7% Genesis Trust Financial & Real Estate $. 3.7% Total $,38. 39.8% CORPORATE BOND ISSUANCE (Q1/) SECTOR BREAKDOWN 1 MANUFACTURING (HIGH TECH) % 2 MANUFACTURING (OTHER).6% 3 SERVICES.7% 4 RESOURCES 1.9% UTILITIES 13.8% 2 7 3 4 6 FINANCIAL & REAL ESTATE 72.8% 7 OTHER.2% 6 SOURCE: Investment Dealers Association CORPORATE BOND ISSUANCE (Q1/4) SECTOR BREAKDOWN 2 1 MANUFACTURING (HIGH TECH) % 2 MANUFACTURING (OTHER).1% 7 3 4 3 SERVICES 11.8% 4 RESOURCES 2.% UTILITIES 8.6% 6 FINANCIAL & REAL ESTATE 9.1% 7 OTHER 18% 6 SOURCE: Investment Dealers Association Review of Debt New Issues and Trading - 2 Q1 9
The financial sector dominated the financing scene with over 7% of the total corporate bond issuance in the first quarter. Trailing behind in a distant second spot is the utilities sector with 13.8% of total issuance. A pair of $1 billion issues from the Bank of Nova Scotia and Genesis Trust and a $7 million deal from Bell Canada helped buoy total corporate bond financings to $.38 billion in the first quarter. Quarterly Comparison of Corporate Bond Issuance by Sector ($ Millions) Manufacturing High Manufacturing Other Services Resources Tech Quarter Value Number Value Number Value Number Value Number ($ Millions) of Issues ($ Millions) of Issues ($ Millions) of Issues ($ Millions) of Issues Q1/4 $. $8. 1 $1,686. 8 $3. 4 Q2/4 $. $. 1 $1,6. 7 $43. 4 Q3/4 $. $41. $4. 2 $323. Q4/4 $12.8 1 $32. $2,449.9 1 $29. 3 Q1/ $. $82. 2 $764.9 4 $26. 4 Utilities Financial & Real Estate Other Quarter Value Number Value Number Value Number ($ Millions) of Issues ($ Millions) of Issues ($ Millions) of Issues Q1/4 $1,8. 4 $8,23.2 7 $2,68.9 19 Q2/4 $674. $9,127.4 7 $812.7 12 Q3/4 $6. 6 $8,43.4 3 $1,488.8 11 Q4/4 $1,832.2 12 $13,28.8 77 $2,988.7 27 Q1/ $1,862. 9 $9,84.1 49 $77. 8 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 - 2 Q1 1
Medium Term Notes: Issuance 2 started the year with Corporates regaining the lead from Governments in MTN issuance. Corporate MTN issuance shot back up to $6.4 billion in the first quarter, an impressive gain of 78% quarter-over-quarter and % increase over the same period a year ago. MTN government financings totaled $6.1 billion in the first quarter, an increase of 23% quarterover-quarter. However, compared to the same quarter a year ago, MTN government financings are off 1% in value. Despite the increase in value for both Corporates and Government MTNs, there were fewer deals this quarter. Government issues were off 13% quarter-over-quarter while Corporates were down 38% quarter-over-quarter. Quarterly Comparison of Medium Term Note Issuance: Government Change Change Change Change Quarter- Year- Number Quarter- Year- Value over- over- of over- over- Quarter Quarter Year Issues Quarter Year Q1/4 $7.2 39% 119% 73-3% 2% Q2/4 $4.4-39% 18% 84 1% 91% Q3/4 $4.1-6% 19% 39-4% -4% Q4/4 $. 21% -3% 63 62% -16% Q1/ $6.1 23% -1% -13% -2% Quarterly Comparison of Medium Term Note Issuance: Corporate Change Change Change Change Quarter- Year- Number Quarter- Year- Value over- over- of over- over- Quarter Quarter Year Issues Quarter Year Q1/4 $6.1-2% -2% 41 86% 14% Q2/4 $8.4 37% 18% 29-29% -3% Q3/4 $3.7 -% -44% 31 7% % Q4/4 $3.6 -% -42% 47 2% 114% Q1/ $6.4 78% % 29-38% -29% Quarterly Issuance of Medium Term Notes 1 Gross New Issues Delivered 8 6 4 2 2 21 22 23 24 2 Corporate Government Review of Debt New Issues and Trading - 2 Q1 11
Strip Bonds: Trading Strip bond trading totaled $28.1 billion in the first quarter, down 11% quarter-over-quarter and 1% from the same quarter in 24. Demand for both provincial and Government of Canada eased in the first quarter -- trading in provincials was down 14% and off 9% in Governments from the fourth quarter. Quarterly Comparison of Canadian Strip Bond Trading Government of Canada Strip Bonds Provincial Strip Bonds Total Strip Bonds Change Change Change Change Change Change Quarter- Year- Quarter- Year- Quarter- Year- Value over- over- Value over- over- Value over- over- Quarter Quarter Year Quarter Year Quarter Year Q1/4 $8.6-37% 4% $18.7 7% 12% $28.4-13% 9% Q2/4 $17.7 1% 8% $18.9 1% 9% $37.9 34% 1% Q3/4 $1.2-43% 11% $12.3-3% -6% $24.1-36% 4% Q4/4 $13.2 3% -3% $16.8 37% -4% $31.7 32% -2% Q1/ $11.4-14% 32% $1.3-9% -18% $28.1-11% -1% Note: Trading data excludes repos, Components will not add to total as Corporate Strips are not reported Quarterly Strip Bond Trading 2 Quarterly Trading 1 1 21 22 23 24 2 Government of Canada Strip Bond Trading Provincial Strip Bond Trading Review of Debt New Issues and Trading - 2 Q1 12
Money Market: Trading Money market trading continued on a strong note in the first quarter. Total trading climbed to $1.24 billion in the first quarter, up 8% quarter-over-quarter and 12% from the same quarter in 24. Trading in commercial paper reached $9 million in the first quarter, up 7% quarter-over-quarter and 22% from the same quarter a year ago. Commercial paper accounted for almost half of the total money market trading in the period. Meanwhile, Government of Canada T-bill trading edged up to $344.9 billion in the quarter, up 2% over the fourth quarter and flat from the same period a year ago. Trading activity also increased for BA s in the first quarter which reached $3.9 billion, a gain of 18% quarter-over-quarter and 7% year-over-year. Quarterly Comparison of Canadian Money Market Trading Government of Canada T-Bills Bankers Acceptances (BA s) Corporate and Finance Company (Commercial) Paper Change Change Change Change Change Change Quarter- Year- Quarter- Year- Quarter- Year- Value over- over- Value over- over- Value over- over- Quarter Quarter Year Quarter Year Quarter Year Q1/4 $344.4-1% 23% $286. -6% -7% $481.9-8% -% Q2/4 $33.1-3% 17% $247.9-13% -19% $471. -2% -7% Q3/4 $346.9 3% 12% $246.7 % -1% $481.1 2% -3% Q4/4 $337.3-3% -3% $26.2 % -14% $1.2 1% 6% Q1/ $344.9 2% % $3.9 18% 7% $89.8 7% 22% Note: Trading data excludes repos BA's & Commercial Paper Trading 8 7 6 4 3 2 1 Money Market Trading (Quarterly Totals) 12 1 8 6 4 2 T-bills Trading 199 1996 1997 2 21 22 23 24 2 Commercial Paper Bankers' Acceptance Government of Canada T-Bills Review of Debt New Issues and Trading - 2 Q1 13
Summary of Bond Trading and Issuance ($ billions except where indicated otherwise) Q1 Q1 /Q1 4 24 23 24/23 /Q4 4% Q1 2 Q4 24 change Q1 24 % change % change 22 21 Government of Canada Bonds* Trading $1,288.4 $1,297.4 -.7% $1,2. 3.1% $4,82.4 $4,4.7 6.7% 3,79. 3,784.3 Issuance $16.1 $16.1.1% $17.1 -.7% $61. $61.1.7% 61.4 47.7 Provincial Bonds Trading $1.3 $113.6-7.3% $14. 1.3% $397.6 $331.8 19.8% 319.9 313 Issuance $8.7 $9.8-11.4% $12.7-31.8% $39.9 $26.6.% 2 19 Municipal Bonds Trading $2.9 $3.6-19.4% $3.1-6.% $12. $14.2-1.% 11.1 11.3 Issuance $.2 $1.7-86.1% $.8-69.% $3.8 $.4-29.6% 4 3.1 Corporate Bonds** Trading $64.1 $66.3-3.3% $.2 16.1% $22. $219. 2.7% 127 11.9 Issuance $13. $23.7-42.9% $14.3 -.4% $9. $4.2 9.8% 32.4 39.8 Total Bonds Trading $1,46.7 $1,48.9-1.4% $1,412.3 3.4% $,487. $,11.7 7.4% 4,248.1 4,21. Issuance $38. $48.9-21.2% $44.8-14.1% $164.9 $147.2 12.% 117.8 19.6 Note: Trading data excludes repos * Includes Government of Canada Bonds and Federal Crown Corporation Bonds **Includes Corporate Bonds, Commercial Paper, Asset-Backed Securities and Other Domestic Bonds Review of Debt New Issues and Trading - 2 Q1 14
CALGARY Suite 23 3 Fourth Ave. S.W. Calgary, Alberta T2P J1 Tel.: (43) 262-6393 Fax: (43) 26-463 HALIFAX TD Centre, Suite 162 1791 Barrington St. Halifax, Nova Scotia B3J 3K9 Tel.: (92) 423-88 Fax: (92) 423-629 MONTRÉAL Bureau 282 1 Place Ville Marie Montréal, Québec H3B 4R4 Tel.: (14) 878-284 Fax: (14) 878-386 TORONTO Suite 16 121 King St. W. Toronto, Ontario MH 3T9 Tel.: (416) 364-6133 Fax: (416) 364-73 Jon Cockerline Director, Capital Markets jcockerline@ida.ca Sherry Hum Research Analyst, Capital Markets shum@ida.ca VANCOUVER Suite 132 P.O. Box 11614 6 West Georgia St. Vancouver, BC V6B 4N9 Tel.: (64) 683-6222 Fax: (64) 683-3491 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.