Bond market softened in Q2

(August 26, 2004) Canada’s fixed income market saw reduced activity in the second quarter of the year, as a number of factors combined to dampen the enthusiasm of bond traders.

“Growing jitters over the softer U.S. economy, rising interest rates, surging oil prices and geopolitical tensions fuelled the turbulence in the Canadian bond market,” the IDA says its quarterly review of debt new issues and trading.

Corporate bonds took the biggest hit in Q2, with trading down 29% and issuance off 11% compared to last year. There were 71 new corporate bond issues in the quarter, worth $12.8 billion, compared to 116 new issues last year valued at $14.5 billion. The bulk of new issues in Q2 came from the financial sector. Royal Bank led the pack with a single issue worth $1 billion and total offerings of $2.2 billion.

Damage to the government bond sector was relatively muted in comparison to the corporate sector, the IDA noted, with trading in federal bonds unchanged compared to last year and government bond issuance down 6%. There were 29 new government issues in Q2 valued at $13.7 billion. Trading in federal bonds totalled $1.17 trillion.

Continued low inflation reduced interest in real return bonds, the IDA said, with trading activity down 3% from last year. Still, the value of total outstanding real return bonds reached $18 billion in Q2, an 8% rise from 2003.

Trading in money market instruments rose marginally, just 0.7% on year-over-year basis, totalling $1.6 trillion.

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