File photo of John Cassaday, president and chief executive officer of Corus Entertainment.Deborah Baic/The Globe and Mail
With interest rates rising off historic lows last year and evidence from the U.S. that investors are starting to return to equities in a big way, there has been a lot of talk lately in investment circles of a "great rotation" under way out of bonds and into stocks.
But a Canadian debt issue this week is a reminder that the bond market remains frothy by historical standards.
On Wednesday, Corus Entertainment Inc. priced a seven-year, $550-million bond deal at a yield of 4.25 per cent. The big news: That's 3 percentage points lower than a similar offering in 2010 ($500-million, seven years), when its credit rating was the same BBB low from DBRS that it is today. (Its rating from Standard and Poor's is one notch higher than it was in 2010, but still below investment grade.)
Better yet, sources in the Canadian bond market say there were 85 buyers, 50 per cent more than the 2010 offering.
The deal isn't an outlier, either. New corporate bond issues have been hot sellers. Just recall the giddy reception that Alimentation Couche-Tard's $1-billion offering received last fall.
So where are all the buyers coming from? Data from the Investment Funds Institute of Canada gives a hint: Canadian investors bought a net $19-billion worth of bond funds in Canada last year and now hold $132-billion worth of bond funds – up close to 150 per cent from the end of 2008.
Sean Silcoff