Canadian SSA bond issuers have made the most of a borrower’s market in 2024. But they have a mutual interest in making sure they operate in consideration of each other, despite their larger borrowing requirements bringing the temptation to go it alone.
They have managed to fund in large size in dollars at levels consistent with their domestic market and have also been successful in euros.
Canada’s SSAs have raised 30% more from core currency offshore bonds in the first month of their new fiscal year compared to the same period in 2023, shows GlobalCapital data. In 2024, they have already issued more volume than they did in all of 2023.
The glut of bonds has gone down well with investors as hungry for Canadian SSA paper as they have been for all manner of debt, in the expectation that yields will fall when interest rates are cut. In euros, for example, there were no Canadian SSA deals in euros — their reappearance, therefore, was valued.
But Canadian issuers are in this for the long haul, with their ballooning borrowing requirements set to continue into next year too. That puts these issuers on shakier ground.
Heavier issuance, all things being equal, means wider spreads. And relying on an increasing number of international markets in which to borrow means a need to time trades with care.
SSA issuers across the board are looking to borrow large amounts. For the Canadian SSAs — a highly correlated group — there is a fear that if one breaks ranks and offers wider spreads to clear its borrowing need, especially if it is one of the bigger issuers, then that will drag spreads wider for the entire sector. Conversely, if one tries to price too tight, that will deter investors from other Canadian deals.
Thus, for the sector as a whole to thrive in the primary market and achieve best value for the Canadian public purse, they must consider the long-term health of the group, rather than short-term, individual gain. Canada geese of a feather should flock together.