Bond market picks up steam in Q2

(August 18, 2005) After a sluggish first quarter, debt financings and trading gained in Q2, generating $41.5 billion, a 14% increase from the same period last year, the IDA says in its quarterly review of debt new issues and trading.

Although issuance of government bonds was relatively flat as Ottawa stuck to its debt reduction plan, the market received a boost from corporate borrowing and trading, which were both up sharply compared to 2004.

Most of the debt financing action in the period came from the corporate sector, the report notes. Corporate financings amounted to $18.9 billion from 117 issues, up 45% from 2004.

The main offerings included $1 billion-plus issues by Golden Credit Card Trust and Wells Fargo Financial.

“The environment was still conducive for debt financings,” the IDA says. “No rate hikes from the Bank of Canada kept short rates flat while longer term yields continued to edge lower in the quarter.”

Total bond trading totaled $1.48 trillion in Q2, up 4% from Q1 and 14% year-over-year.

“So far, the debt market has held up. In the first six months, debt issuance is up 0.7% and trading is up 11% from the same period a year ago.”

Despite the prospect of rising interest rates and continuing record-high energy prices, the IDA expects that debt trading activity will continue on solid ground in the coming months.

Inflationary pressures remain subdued, the brokerage industry association notes, and it’s doubtful that the central bank will raise rates substantially. “Against this backdrop, financings in the coming months will most likely level off, not tank, from current levels.”

Filed by Doug Watt, Advisor.ca, doug.watt@advisor.rogers.com