Canada's bond market has undergone meaningful changes in issuance trends in recent years, according to Desjardins in a note Wednesday.
The federal government has become a larger presence in the Canadian-dollar debt market, while financial institutions have increasingly turned to offshore funding, with foreign-currency debt now exceeding domestic debt outstanding, Tiago Figueiredo, Macro Strategist at Desjardins, inoted.
The shift has been driven by several factors, including the growing international presence of Canadian banks, increased access to deeper capital markets, broader investor diversification and the potential for lower hedged funding costs, said Desjardins.
Canadian provincial issuers have increasingly tapped international markets to fund larger deficits, supported by strong demand and favorable conditions in US dollar and euro markets, the bank added.
The changing issuance mix remains supportive for credit spreads, but rising non-financial corporate and bond sales in Canadian dollars by non-Canadian sellers should be monitored for signs that offshore market conditions and supply dynamics are becoming less favorable, said Desjardins.