Corporate issuance in the Canadian bond market is set to moderate after the second busiest first quarter on record, according to a report from RBC Capital Markets. 

That’s partly because borrowers in certain sectors are finding it cheaper to borrow in foreign markets. Issuance will continue to be opportunistic after about $40 billion (US$29.2 billion) of bond sales in the first quarter, the report said.

Corporate Canada’s borrowing spree this year has been spurred by credit spreads tightening to near historic lows in many sectors and the desire to get ahead of potential volatility related to the upcoming U.S. election. Investors chasing yields based on expectations that most major central banks will cut interest rates this year have been driving demand for such debt recently.

“Issuers are encouraged to capitalize on the constructive market sentiment and seize windows of opportunity rather than wait until the second half of the year,” Rob Brown, co-head of Canadian debt capital markets at the firm, said in an email.  

Borrowers should preempt the potential for increased volatility given the uncertainty around the actions of central banks, the report said. On Wednesday, the Bank of Canada kept borrowing costs steady for a sixth consecutive meeting, with officials signaling they’re closer to rate cuts. But a hotter-than-expected U.S. inflation report — also on Wednesday — dashed hopes that the Federal Reserve will cut rates in June. 

Meanwhile, the Canadian public sector saw its busiest first quarter on record, with issuance of about $52.5 billion (US$38.4 billion). RBC Capital Markets expects issuance in the sector to continue to be strong throughout 2024 because provinces will need to borrow about $133 billion (US$97.3 billion) for the government fiscal year. 

National Bank of Canada’s financial markets unit also anticipates Canadian provinces to borrow 22 per cent more this year as deficits rise.