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(July 28, 2006) CIBC World Markets reports that Canada’s provincial governments are taking advantage of their improved budgetary positions to bolster the financial health of their public sector pension plans.

Most notably, CIBC found that Quebec’s Retirement Plans Sinking Fund, created in 1993 to pay pension benefits, returned an average 9.3% during the past decade, exceeding interest charges on new borrowings. This, combined with eight years of deposits to the fund, has pushed the balance in the RPSF to $22.5 billion. The fund is expected to meet 70% of the province’s pension obligations five years ahead of schedule with pension liabilities all but eliminated in 2020.

At the federal level, Ottawa’s public sector pension liability has grown modestly in recent years, but the provinces are making special payments against their liabilities, in many cases using borrowed money, to put their plans on a firmer long-term footing and help trim future debt-servicing costs.

Newfoundland and Labrador applied $2 billion of the Atlantic Accord cash received from the federal government to its pension obligations last year, halving its liabilities to GDP ratio and triggering a decline in total government debt. Further payments will be financed by government borrowing. Other provinces, including Manitoba, New Brunswick and Prince Edward Island, continue to make special payments against their pension liabilities. The report says solid investor demand for high-quality provincial bonds has allowed government to make debt-financed pension payments without unduly pressuring provincial interest-rate spreads.

“Today’s focus on pension shortfalls coincides with a generalized improvement in provincial finances,” says senior economist, Warren Lovely. “In the past, budget deficits constrained government efforts to shore up pensions, but today’s reduced financing needs for government programs provide a more accommodative backdrop for special pension payments.”

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BluMont launches new series of notes

(July 28, 2006) BluMont Capital has introduced the fourth series of the BluMont Man-IP 220 Notes. The product provides investors with access to the Glenwood Portfolio, a fund of hedge funds, and the AHL Diversified Program, a managed futures program, both managed by Man Investments. The multi-manager, multi-strategy notes also include a 100% principal repayment guarantee from Citibank Canada.

Series 3 notes raised $52.3 million in assets. The company says the structure is one of Man’s most successful product structures. The notes, scheduled to mature in June 2018, are available for sale until October 10.

Deferred sales charges for redeemed notes range from 4% to 1% of the net asset value per note. The notes are also available for sale with a shortened or reduced DSC schedule. Commissions range from 2% to 4%, depending on the class and redemption schedule selected. Minimum investment is $5,000.

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Scotiabank Commodity Price Index drops

(July 28, 2006) The Scotiabank Commodity Price Index, which measures price trends in 32 of Canada’s major exports, declined 4.8% month over month in June after reaching a record high in May. The All Items Index remained 15.2% higher than numbers reported a year earlier.

Temporary strength in the U.S. dollar pushed gold and silver prices lower during the month and the Oil and Gas Index retreated, thanks to high U.S. inventories and little recovery in U.S. industrial demand. Canadian natural gas exports continued to slip in June, but Scotiabank says recent hot summer temperatures and record U.S. electricity generation are starting to boost prices.

Ongoing geopolitical supply risks, however, have prompted Scotia economists to lift their forecast for oil to $71 per barrel for 2006 and $68 per barrel for 2007. “Prices are likely to stay above $60 for most of the remainder of the decade,” says vice-president and commodity market specialist, Patricia Mohr.

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