Interesting times in Canada! Late last week the Bank of Canada issued its
Senior Loan Officers Survey, a quarterly affaire that tracks where the lending
market is going. Of course in Canada
with 6 large lending institutions the information is unusually helpful – it is
a real source of help in understanding what lenders “believe” the market to be
doing. First off, the demand for loans
remains strong, and condition continue to be favourable, competition is the
problem, there’s too much of it keeping standards loose (the same for pricing),
although the improvement has “diminished... not too sure what to make of that “negative”
statement. The BoC seems to be of the
opinion that lending standards remain reasonable and seem to have nicely
rebounded from the lows of 2009.
The Canadian bond market is
saying a similar story with a strong probability that 2010 record $78 billion
in new issuance will be “beat”. As of
last week the Canadian market has seem issues totalling C$61 billion vs. $55
billion in 2010. The IPO market while
not “on-fire” is far from being a disaster, despite the market being down
nearly 12% since January 1, 2011.
The question is “What about 2012”,
there the news is far from clear. There
is no doubt that Canadian corporations have been cleaning up their balance
sheet (over the past 18 months) issuing longer term debt to increase their
duration (and reduce cash flow exposure).
Also, it has to be pointed out that for the past year financing costs
for corporations have been very attractive.
There is a “feeling in the air” right now. That every thing could come down
crashing. The American economy is weak,
Europe is playing with fire and the non-OECD countries because of their
inflation problem cannot be counted on to take up the slack.
All these represent a substantial
problem for Canada – as a small export nation when the bulk of our clients are
in trouble, we too are in trouble. Not
only is an issue as to sales, price is also an issue. Although non-OECD countries now account for
about 50% of oil consumption (and about 55% of all energy consumed) it remains
that this is only one aspect of the overall export situation: what about Zinc, gold etc.
I wish I had a solid conclusion –
bottom line the Canadian debt market is doing fine this year. Market fears are interesting, but investors
are still aggressively buying Canadian corporate bonds... BTW the buyers are
mostly Canadian, as the issuers are generally not well know outside the
country. Foreign investors focus on sovereign
instruments.
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