Photographer: Chris Ratcliffe/Bloomberg

Morgan Stanley Bond Sale Pushes Canada to Best Start Since 2013

  • Total nears C$8 billion as U.S. bank bumps up its deal size
  • Nation’s debt market a ‘destination for competitive funding’

Morgan Stanley capped off the best start to a year in Canadian-dollar corporate-bond sales since 2013 as an improving global economy amid low interest rates creates the right conditions for borrowers and investors alike.

The New York-based bank sold C$1 billion ($768 million) of debt Tuesday, double the minimum originally indicated, to drive corporate-bond issuance in Canada’s domestic market to about C$7.9 billion, according to data compiled by Bloomberg. That’s a 114 percent increase in issuance volume for the same period last year.

“What a difference a year makes,” Susan Rimmer, global head of debt capital markets at Canadian Imperial Bank of Commerce, said by phone from Toronto. CIBC led the Canadian corporate bond LEAG table for deal volume in January. “Our clients have been busy. Markets are open. Investors are receptive.”

Canada’s bond market looks positively robust compared to last year’s start, when issuers sat on the sidelines amid concerns about the health of the global economy amid tumbling commodity prices. That uncertainty soon gave way to Canadian corporate issuers heading to the U.S. dollar and euro bond markets for most of the year for better cost of funding.

Borrowing costs have fallen since then. The premium investors demand to hold the bonds over government debt is about 126 basis points, or 1.26 percentage points, the lowest level since June 2015, according to an index of Canadian corporate bonds. The spread was around 184 basis points at the end of January last year.

Banks Lead

Banks topped the ranking of the biggest corporate-bond sales in January, with Canadian Imperial Bank of Commerce pricing C$1.5 billion of three-year notes and Federation des caisses Desjardins du Quebec finding buyers for C$1 billion of five-year securities, its first foray into the Canadian dollar bond market in almost two years.

Morgan Stanley opened books with a target size of at least C$500 million and ended up selling twice as much. The bonds were priced at 152 basis points above the government curve, the lower end of a proposed range, according to a person familiar with the matter, who isn’t authorized to speak publicly and asked not to be identified.

Other issuers included Honda Canada Finance Inc. and Pembina Pipeline Corp., which both sold C$600 million of bonds in two-tranche deals. IGM Financial Inc. also priced a total of C$600 million of 10-year and 30-year bonds upon its return to the debt market after almost six years, while Algonquin Power Co. priced C$300 million of its debut 10-year bonds.

Expectations that interest rates will rise further are likely driving issuers to market, David George, a credit portfolio manager at Connor, Clark & Lunn Investment Management, said by phone from Vancouver. The Canada 10-year government bond yielded 1.79 percent at 8:35 a.m. in Toronto.

“Maybe now is a good time to print a coupon,” he said. Despite the strong start, corporate borrowers aren’t expected to issue significantly more debt this year given the lower maturity schedule, George said.

CIBC’s Rimmer said investors can expect that more foreign borrowers will follow in Morgan Stanley’s footsteps.

“We will continue to see global borrowers evaluate the Canadian fixed-income market as a destination for competitive funding,” she said.

Before it's here, it's on the Bloomberg Terminal.
LEARN MORE