Canada plans to sell about C$20 billion (Dh74.93 billion) in bonds next quarter, the least since 2008, amid shrinking deficits and the end of emergency programmes established during the global financial crisis.
Average issuance was C$24.6 billion per quarter since the final three months of 2008, according to Canadian Imperial Bank of Commerce estimates. Sales from August through September will be weighted to shorter maturities, with three auctions of two-year bonds and one sale each of three-, five- and 10-year debt, Bank of Canada said on Thursday. No 30-year bond auctions are scheduled.
Dwindling supply and persistent demand from international investors means Canadian government bonds will likely outperform developed-nation peers such as the US, according to Warren Lovely at CIBC World Markets. Canada's sovereign debt has returned the most in the Group of Seven this month, according to Bank of America Merrill Lynch data.
"This is a pretty constructive development for the underlying government of Canada market," Lovely, a government debt strategist in Toronto, said. "It's going to contribute to relative performance of Canada versus the US in some parts of the yield curve."
Ten-year Canadian bonds yielded 2.95 per cent at the end of last week, less than one basis point above equivalent-maturity US securities. The bonds have yielded on average six basis points higher than US debt over the past year.
The benchmark 10-year bond yield fell six basis points while the price of the 3.25 per cent security due in June 2021 rose 55 cents on the dollar to C$102.65.
Canadian government bonds are headed for a 3.2 per cent increase this quarter, which would be the best performance since they returned 3.7 per cent in the three months through June 2010, according to Bank of America Merrill Lynch data.
Elsewhere in credit markets, the extra yield investors demand to hold the debt of Canadian companies rather than the federal government ended last week at 134 basis points, or 1.34 percentage points, from 133 the week before, according to Bank of America Merrill Lynch data.
The so-called spread on Canadian corporate bonds this year has been as wide as 137 basis points and as narrow as 122.
US corporate bond spreads widened last week to 166 basis points through June 16, from 162 the week before.
Relative yields on provincial and municipal debt remained at 0.54 percentage point last week from the week before. Spreads touched 0.56 percentage points on June 7, the widest this year, according to Bank of America Merrill Lynch data.
Corporate yields fell to 3.65 per cent, from 3.71 percent the week before.
Bank of America Merrill Lynch's Canadian Corporate Index has returned 0.7 per cent in June, compared with 0.8 per cent for federal debt and 1 percent for provincial bonds.
Concern that Greece may default on its debt and a slowing US economy is driving interest rates down as investors seek a refuge for cash. Government of Canada 30-year bonds yielded 3.38 per cent on June 16, the lowest since October.
From / Gulf News