Canadian bond markets put together for debt deluge

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The Canadian market is about to be flooded with some large bond offers, and traders have up to now been snatching up the debt.

TC Energy Corp.’s liquids pipeline spinoff South Bow Corp. is getting ready to promote $7.9 billion of debt within the coming months, a portion of which will likely be loonie-denominated. Trans Mountain Corp. is gearing as much as borrow within the bond market to refinance a few of its $25.3 billion excellent debt. These offers comply with the $7.15 billion debt providing from fuel pipeline Coastal GasLink in June, which was the most important loonie-denominated company bond issuance ever.

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The Canadian debt market isn’t used to such giant volumes. Last 12 months, issuance stood at $102 billion, in contrast with US$1.5 trillion borrowed within the U.S. greenback corporate-bond market, based on knowledge compiled by Bloomberg.

This 12 months, Canadian corporates have been wanting to borrow forward of the U.S. elections in November, which might spur market volatility. Issuance is already at $88 billion, the quickest tempo for the interval, based on knowledge compiled by Bloomberg going again to 2013.

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All of that was taken by traders “with none obvious indigestion,” mentioned Rob Brown, co-head of debt capital markets at RBC Capital Markets. Strong investor urge for food has given issuers confidence that they’ll nonetheless deliver giant offers to the market with out paying a lot greater premiums.

“Transactions have been characterised by wholesome ranges of oversubscription, broad distribution and strong efficiency within the secondary market, all elements that bode nicely for continued momentum,” Brown mentioned.

That momentum is partially supported by a continued inflow of cash into the fixed-income market, mentioned Sam Dorri, managing director at Canadian Pension Plan Investment Board. Funds will come from any variety of asset lessons, together with personal belongings, he mentioned.

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Investors have been lured to Canadian markets by greater yields. The common yield on Canadian company bonds has stayed above 4.5 per cent for about two years, in contrast with the two per cent -4 per cent for many of the decade prior, based on a Bloomberg index.

The math works for debtors, too. The further yield traders demand to carry these bonds is hovering round 1.2 proportion factors over Treasuries, in comparison with greater than 1.4 proportion factors a 12 months in the past and greater than 1.6 proportion factors two years in the past.

The Bank of Canada has already snipped borrowing prices twice this 12 months. Investors seeking to get forward of additional charges cuts might stoke additional demand for company bonds.

“A extra modest tempo of provide by way of July owing to earnings blackouts and the beginning of the summer time slowdown ought to function a pleasant reprieve for the market and set us up nicely for the autumn,” RBC’s Brown mentioned.

With help from John Riggio

Bloomberg.com

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