TORONTO, March 25, 2011— According to PwC’s Canadian Deals Leader Kristian Knibutat, “all-in funding costs for issuers of debt in Canada are extremely low – a state of affairs that bodes well for Canadian and foreign issuers seeking to tap into Canadian debt markets, including the emerging Canadian high yield market.”
Writing in the firm's Capital Markets Flash report, Knibutat says that despite a slight increase in Canadian base rates and evidence of an uptick in inflation expectations, Canadian corporate bond yields remain extremely low:
These rates are the foundation upon which the pricing of most other risk assets in Canada are based.
The report sets out a credit market snapshot and summarizes select government and corporate debt market trends including:
Financial services issuers continued to dominate investment grade issuance activity during Q1 2011.
Against this backdrop of nominal rates, appetite for yield continues to be voracious.
According to Knibutat, "In many ways, 2011 looks a lot like 2007. We are seeing new high yield issues from a wide variety of public and private corporates oversubscribed and clearing the market at very attractive rates. High yield issuances south of the border are even covenant-lite again."
Canada benefiting from global turmoil, increasingly attracting foreign issuers:
"2011 is set to be a record issuance year for maple bonds, measured by volume. This is indicative of Canada actually being a beneficiary in an environment of geopolitical uncertainty. Lower rates, south of the border, however, mean we are still well below peak issuance measured by value," says Knibutat.
The report questions the sustainability of the credit rally, in light of the spectre of inflation and global macro instability. Knibutat recommends that "while opportunities abound, it is an ideal time for corporates seeking to secure M&A capital or refinance to raise capital in Canada."
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