Norway’s Kommunalbanken sold its first Canadian dollar debt in two years at the end of last week. Now, a C$250m ($247.2m) note from a safe issuer does not necessarily mean that investors and issuers are rushing back to the currency. But recent deals have provided some encouragement to a market that is still recovering from its post-crisis slump.
Before the crisis, the Canadian dollar SSA market was a hot prospect: volumes doubled year on year in both 2006 and 2007, spiking from C$3bn in 2005 to C$12bn in 2007. But in 2008, it plummeted to a mere C$300m. The Canadian dollar’s issuance share fell from 3% 2007, to less than 0.1% in 2008, according to RBS research.
The market is certainly not heading for such heights again this year. But a C$500m deal from JBIC in March and another C$500m from the EIB in April added some positive momentum. The last time the market managed two deals of this size in quick succession was the bumper year of 2007. With C$1.35bn of issuance so far, the year does stand a good chance of creeping above 2012’s C$1.63bn.
Other than volume, the big difference between now and pre-crisis is the investor base. While the lion’s share of demand for Canadian dollar paper in the boom years came from domestic accounts, this year’s deals have been sold mainly to international investors. KBN’s deal last week went mostly to Europe and Asia, as did the EIB’s benchmark in April.
A negative basis swap into dollars from Canadian dollars means internationals are offering a narrower spread over Canadian issuers than they managed in the pre-crisis years.
With a thriving domestic market for public sector issuance — mainly from the Canada Housing Trust and the provinces of Quebec and Ontario — Canadian investors can afford to turn their noses up at international issuers and stick with what they know. Remember Maple bonds? There’s only been one from a SSA issuer since 2007, according to Dealogic data (from Kommunalbanken, coincidentally).
However, issuers do not need to appeal to the locals. Recent trades have shown that they just need to be globally known and offer a price more or less in line with where they fund in other currencies.
An asset manager in Hong Kong is not going to be put off if he is only making a 5bp spread over Ontario. Investors are happy to pick something up at a fair value compared to dollars and euros — the Canadian dollar is a safe currency and issuers and investors alike are keen to diversify.
The public sector Maple market may have had its day, but issuers should not shun the Canadian dollar. Quite the opposite.
