Ontario is being treated more and more like the increasingly risky borrower that it is.
As the Ontario government focuses on finding ways in Tuesday's budget to eliminate the persistent annual deficit, the bond market is exacting a steadily bigger toll for financing the government's growing debt.
However, like profligate borrowers the world around, so far the global decline in interest rates is insulating the provincial treasury (and by extension, taxpayers) from what's happening.
The fact is that over the past five years, the premium that Ontario must pay to borrow compared to what the government of Canada has to pay has been climbing.
A decade ago, Ontario five-year bonds actually yielded less than five-year Government of Canada bonds, according to data from Bloomberg.
Even as recently as five years ago, investors demanded a yield premium of just 14 basis points (or 14 hundredths of a percentage point) to choose Ontario five-year bonds over federal government bonds.
By this time last year, the premium investors wanted to buy Ontario five-year bonds was 34 basis points. Now, the premium is 56 basis points. That means the gap has widened a further 22 basis points in the past 12 months after increasing by only 20 basis points in total over the preceding four years.
The trend is similar in 10-year bonds. In 2007, the premium was 27 basis points over Canada's. Last year, it was 80 basis points. Now, it's 100 basis points, having jumped another 20 basis points in the last year.
To be sure, the spread between Ontario and Canada bonds moves around significantly, depending on world events. The spreads increased dramatically in 2008 amid the global financial crisis.
But stand back and look at a chart of the spreads over five years and there's no doubt the general move is to wider spreads. Ontario is simply paying more, relative to Ottawa, than in the past.
What's saving Ontario from the pain of wider spreads is the general drop in interest rates. Even with the bigger premiums, Ontario is paying less in total to borrow each new dollar. Five years ago, Ontario five-year bonds traded at a yield of 4.13 per cent. Today they trade at 2.17 per cent.
When the bull market in government bonds ends and yields start to rise, as some observers believe is already happening, what will happen to Ontario then?