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RBC Forecasts Deceleration in Canadian Corporate Issuance Following a Busy Quarter

The Canadian corporate bond market is poised to ease off after experiencing its second busiest first quarter on record, as indicated by a report released by RBC Capital Markets.

This moderation is attributed in part to certain sectors finding borrowing in foreign markets more cost-effective. The report suggests that corporate issuance will maintain an opportunistic stance following a substantial $40 billion (US$29.2 billion) worth of bond sales in the first quarter.

The surge in borrowing activity by Corporate Canada this year has been fueled by tightening credit spreads across various sectors, coupled with a desire to pre-empt potential volatility linked to the forthcoming U.S. election. Investor demand for such debt has been robust, driven by the pursuit of yields amid expectations of interest rate cuts by major central banks throughout the year.

Rob Brown, co-head of Canadian debt capital markets at RBC, highlighted the importance for issuers to capitalize on the favorable market sentiment and seize available opportunities promptly rather than deferring to the second half of the year.

The report underscores the need for borrowers to anticipate heightened volatility amidst uncertainty surrounding central banks’ actions. While the Bank of Canada recently maintained borrowing costs for a sixth consecutive meeting, signaling a likelihood of rate cuts, hopes for a June rate cut by the Federal Reserve were dampened by a U.S. inflation report revealing higher-than-expected figures.

In contrast, the Canadian public sector witnessed its most active first quarter on record, with approximately $52.5 billion (US$38.4 billion) in issuance. RBC Capital Markets forecasts continued strength in sector issuance throughout 2024, driven by provinces’ anticipated need to borrow around $133 billion (US$97.3 billion) for the government fiscal year.

National Bank of Canada’s financial markets unit also anticipates a 22% increase in borrowing by Canadian provinces this year as deficits rise.

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