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Fixed Income Quarterly—Outlook
The current environment remains a seller’s market, both in terms of the primary and secondary activity. The disruption to new deal flow has translated straight into a positive spread performance. Add in the traditional surge in risk-taking to start the year, and the buying interest has really been sprayed across the full spectrum of credit quality in Canada. We believe the rampant demand/supply disequilibrium in Canadian corpo- rates, to a large degree, has insulated the domestic market from the short-term vagaries transpiring at the global level.
We believe the domestic corporate market will continue to be driven by conditions on the primary side of the equa- tion. As noted above, investors are well positioned for
supply, with market dynamics having adjusted accordingly (e.g., new meaningful players, a faster new issue approval process, greater risk tolerance and new conceptions of relative value). We believe any disruption to a steady flow of bonds no doubt will exacerbate the conditions of the current demand/ supply disequilibrium.
We maintain our position that with a backdrop of range- bound yields, we believe corporate bonds in Canada represent a sensible investment vehicle and we expect money to continue flowing into the asset class. Since GoC rates remain at paltry levels, we believe the incentive to add spread and juice returns is quite a palpable goal.