Fixed Income Quarterly—Provincial Perspectives
Page 5
Primary Market Expectations
Despite recent spread weakening, we believe the Provincial market is on the precipice of breaking into new, lower spread ranges in the medium term. Over the near term, we expect some short-term pressure on spreads since the Provinces are able to come back to the primary market and grab some funds to begin their fiscal years. Following that anticipated pulse of issuance, however, we believe the Provincial market will settle back down in the May-June time frame and resume its trajec- tory towards establishing new, lower spread ranges. We are still a ways off from where Provincial spreads traded before
the credit crisis, and thus expect ranges to continue moving down toward pre-credit crisis levels, absent any external risk of course. In particular, we believe investors remain interested in the extra carry that provincials offer, despite 10-years and 30-years both generally being towards the lower end of their recent ranges.
The emergence of issuers that have been out of the primary market for some time has given investors new opportunities to trade for relative value. Having said that, buyers of higher- quality provincial issuers are awaiting issuance from federally backed entities to see if any re-pricing occurs.
Chart 5: Government & Agency Monthly Issuance (All Currencies)
Chart 6: March 2014 Issuance by Province (All Currencies)
25.0
20.0
15.0
10.0 $8.5
5.0 0.0
Provincial
$11.1 $11.5 $9.9 $9.3
Municipal
Agency
1,600 1,400 1,200 1,000
800 600 400 200
0
$1,350
$18.0
$12.7
$600
$250
$-
$9.2
$10.9
$8.8 $7.8
$350
$6.2
$7.0
$125 $-
$- $- $-
$-
Source: BMO Capital Markets
Source: BMO Capital Markets
Chart 7: Provincial Maturity Schedule
45.0 40.0 35.0 30.0 25.0 20.0 15.0 10.0 5.0 0.0
38.6
40.8
39.3
36.4 34.2
32.1
30.8
28.1
25.7
26.7
23.6
15.1
14.0
13.6
21.3
2.7
14.5
12.3
10.9
8.8
Manitoba Newfoundland
10.1
8.6
7.8
7.1
6.9
6.0
6.4
6.1
3.5
4.4
1.7
0.9
1.3
Ontario
New Brunswick
Quebec Nova Scotia
British Columbia Saskatchewan
Alberta
Prince Edward Island
Source: BMO Capital Markets
C$ eq. billion
C$ Eq. (Billions)
2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 2038 2039 2040 2041 2042 2043 2044 2045 2046+
Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13 Nov-13 Dec-13 Jan-14 Feb-14 Mar-14
C$ Eq. (Millions)
Alberta
B.C.
Manitoba
New Brunswick
Newfoundland Nova Scotia Ontario P.E.I. Quebec Saskatchewan Yukon