Canada corporate bond market issuance perking up again

Canadian Utilities

15/11/2022 19:25

By Divya Rajagopal
       TORONTO, Nov 15 (Reuters) - Canadian corporate bond
issuance has begun to rebound after a lull of 10 months, with
companies plotting expansion plans and central banks apparently
close to the peak of their current cycle of interest rate hikes.
    Companies including Enbridge  ENB.TO , Bell  BCE.TO , Bank
of Nova Scotia  BNS.TO  and Brookfield Renewables raised a
combined C$4 billion ($3.00 billion) by issue of new corporate
bonds in the first week of November, capping the busiest week
for issuance in six months.
    Some new bonds drew investors by offering juicy yields
upwards of 5%, attractive for high grade fixed income products
at a time of high volatility in the equity markets.
    "After more than a decade of return-free risk in fixed
income, current yield levels are very attractive," said Brian
D'Costa, President of Algonquin Capital, that specializes in
fixed income investments. "We haven't seen such yield levels in
the last 15 years, and portfolio managers have cash to put to
work," D'Costa explained.    
    Bond dealers expect further issuance in coming weeks from
Canadian utilities, pipeline companies and possibly real estate
investment trusts (REITS). They expect investors to return to
fixed income markets that this year had seen the biggest
outflows in two decades as interest rates soared. 
    "The corporate bond market is opening again, this comes at a
time when see the Federal Reserve and Bank of Canada are done
with their round of interest hikes," said Thomas Holloway, of
Pacifica Partners, "So companies are trying to get things done
quietly." 
    The Canada trend is in line with global resurgence in the
bond market as investors expect a peak in inflation should
prompt a pause in rate hikes from central banks. Corporate bond
issuance in Canada fell 44% in the first nine months of the year
to C$34.0 billion, according to data from Refinitiv.
    Last month, the Bank of Canada flagged slower pace of
interest rate hikes after surprising the markets with a 50 basis
point increase in its key rate at its meeting.
    Fund managers expect non-financial companies to lead the way
as companies look to raise funds to either refinance debt or
build cash in the balance sheet for capital expansion. This year
in Canada, most corporate bond issuances have been from banks,
and many portfolio managers have reached their limits on the
financial sector.
    Bell offered its 10-year bond at a coupon of 5.85%, while
Bank of Nova Scotia sold five year bonds worth C$1.5 billion
with a coupon rate of 5.5%.
    Companies anticipating further rate hikes from the Bank of
Canada could prefer to issue fixed rate bonds instead of opting
for a floating rate commercial loan, analysts said.
    After a lull of first 10 months, the S&P Canada Investment
Grade Corporate Bond Index has risen by 0.61% in the last one
month, though year to date it is down 10%.
    A Bank of America Global Research published last week noted
that investors have bought bonds worth $2 billion in first week
of November, the most in the last four months.
 ($1 = 1.3312 Canadian dollars)
 (Reporting by Divya Rajagopal; Editing by David Gregorio)
 ((divya.rajagopal@thomsonreuters.com;))