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Most Impressive SSA House for the Canadian Market: RBC Capital Markets

The resurgence of the Maple bond market from its lows since the 2008 financial crisis has delivered a healthy flow of sovereign, supranational and agency borrowers over the last year. RBC Capital Markets has been at the forefront of the revival, delivering some of the year’s biggest transactions and leading the league tables.

“What differentiates us is that we manage the process in a globally coordinated way with the Toronto government finance and syndicate teams involved in the process in collaboration with our colleagues in New York and London,” says Alex Caridia, head of North American public sector debt capital markets.

Caridia was involved in the Maple market’s pre-financial crisis heyday from 2005 to 2007 and covered European SSA issuers for the bank from London for over a decade before moving to Toronto in 2016.

“SSA issuance is very much part of the DNA of what we do and, given my history in the space, I think that has increased the focus on the product in Canada and given us an edge,” he says.

That level of integration also helps the bank give its Canadian clients access to international markets, says Sean Taor, head of European DCM. 

“By leveraging the global resources we have across both government finance and SSAs we have been able to lead the delivery of international issuers into the Maple market as well as Canadian issuers across markets outside of Canada,” he says.

The Maple market offers borrowers investor and currency diversification, so having bankers close to those buyers is important.

The recent revival in issuance saw volumes rise to C$7.2bn ($5.5bn) in 2019, up from C$5.2bn in 2018 and almost nothing in 2016 and 2017. This year is on track to surpass that, with C$6.6bn printed by mid-September — although there is still some way to go before the market regains its 2007 stature when C$11.3bn was issued.  

Both domestic investors, which have seen an uptick in liquidity, and international buyers — especially from Asia — are driving the increased demand.

One feature new to the Maple market has been the strong desire for environmental, social and governance (ESG) themed issuance. Domestic buyers are keen to get their hands on ESG paper as many have specific mandates to buy it and SSA issuers are a rich source.

While Canadian province issuance has increased because of Covid-related budget pressures, the expansion of the Maple market has offered domestic investors greater diversity. 

That allowed World Bank, historically the leading SSA Maple issuer, to take unusually large chunks of funding from the market. Its visits in January and June raised C$3bn, or 46% of the total printed so far.

“Twice taking C$1.5bn out of the market is, even by the standards of some of our provincial borrowers, a big deal,” says Jigme Shingsar, managing director, US dollar DCM. “The size and the number of times they have accessed the market has given investors comfort around liquidity. The further addition of two deals from Inter-American Development Bank and even a rare International Finance Corporation issue demonstrate the development of the Canadian dollar as a strategic source of funding and diversification for SSA issuers.”

The growth in issuance has improved liquidity with bid-offer spreads now 1bp-2bp compared to 4bp-5bp before.

“In previous times there was less two-way liquidity and bid-offer spreads were not always as consistently competitive as in other markets,” says Shreya Shah, director, rates trading. “But given the large uptick is both domestic and international interest in these high quality names, I have seen bid-offer spreads compress dramatically. This is a very healthy development, and should lead to further growth and issuance in Canadian dollar SSAs.”