May 25, 2023
Canadian bond issuers rush ahead of U.S. debt ceiling deadline
US on Credit Watch as Default Looms
Corporate issuers are racing to sell debt denominated in Canadian dollars as the standoff around the U.S. debt ceiling continues and investors look to lock in the highest yields since November.
Bank of Montreal is leading five issuers raising $4.75 billion (US$3.49 billion) in the Canadian dollar bond market this week, according to data compiled by Bloomberg. That’s the most since the second week of January, when five companies priced $5.5 billion in new bond deals.
Tensions around the U.S. debt limit ratcheted higher after Fitch Ratings on Wednesday warned the nation’s AAA grade might be under threat. Meanwhile, all-in yields in the Canadian corporate bond market reached 5.247 per cent on Wednesday, the highest since early November, according to Bloomberg indexes.
That’s not all that’s encouraging companies to tap the loonie market now: Traders are betting on at least one additional rate hike by the Bank of Canada this year, which is set to hold its next monetary policy meeting on June 7.
Issuers are “taking advantage of increased demand and getting in front of debt ceiling headlines and the Bank of Canada on June 7,” said Brad Saunders, head of the debt capital markets and syndication desk at Desjardins Securities. “Investors are looking to deploy dollars at higher yields than was available in early May and most of April.”
Investors are scouring for new investment opportunities ahead of billions in expected coupon payments next month. For the first half of June, investors in the FTSE Canada Universe Bond Index expect about $13 billion in payments, based on estimates sent by bond dealers earlier this month.
BMO on Thursday raised $2 billion by pricing 5-year senior bail-in bonds at the mid-point of the guidance that called for a spread of between 168 and 170 basis points, according to people familiar with the matter. Inter Pipeline priced $750 million of 7-year bonds at 239 basis points over Treasuries, said the people.
BMO, which sold a separate covered bond deal in British pounds on Thursday, didn’t immediately respond to a request for comment. A representative for Inter Pipeline also didn’t respond to a request for comment.
BMO last brought a benchmark-sized transaction in Canadian dollars in January when it raised $650 million of Additional Tier 1 securities. Inter Pipeline’s most recent bond deal in the Canadian currency took place in November.
Earlier this week, IGM Financial, FortisAlberta Inc. and Enbridge Inc. closed bond transactions with a combined volume of $2 billion, according to Bloomberg-compiled data.