Tentative signs of uptick in borrowing as Bank of Canada expands efforts at economic stimulus
Governor Stephen Poloz might not be willing to engage in quantitative easing, but that doesn’t take much away from the sheer scale of the Bank of Canada’s beefed-up asset-buying program — which may very well lead to a surge of new corporate borrowing.
Following the central bank’s announcement that it would buy as much as $10 billion in high-grade corporate bonds for the next 12 months, investors and bankers in the country’s corporate debt space expressed optimism that it would help encourage activity.
“It definitely helps new issuance,” Andrew Becker, head of Canadian investment-grade debt origination at TD Securities, told the Wall Street Journal.
Canadian corporate borrowing has been slow to recover compared to that in the U.S.; Dealogic reported US$3.4 billion in Canadian nonfinancial corporate issuance in March, representing a 30% decline compared to the same period last year. But investors in Canada might be getting more comfortable, as the equivalent debt issuance for this month up to April 14 amounted to US$3.7 billion.
Altaf Nanji, a managing director at Manulife Investment Management, told the Journal that the spread between corporate bond yields and benchmark Canadian debt dropped by 15 basis points following the Wednesday announcement from Canada’s central bank; as of Wednesday afternoon, Canadian corporate bond spreads stood at 2.15 percentage points.
“There’s been a complete reversal” in Canadian bond investor sentiment, noted Horizons ETFs CEO Steve Hawkins. While buyers were scarce in March, now Canadian investors are “screaming for credit,” looking for new issuances to snatch up.
It’s against this backdrop that TD made history with the largest-ever bond sale by a corporate or financial institution in Canada, selling $3 billion of five-year notes after receiving $5 billion of orders. And despite the ongoing struggles in the energy sector, Calgary-based Suncor Energy was able to successfully close the sale of $1.25 billion worth of bonds on April 9.
