(Bloomberg) -- The tariff throwdown between Donald Trump and Justin Trudeau has slowed Canadian corporate bond sales to a trickle over the past week as investors demand a higher premium to hold loonie debt.
Most Read from Bloomberg
-
NJ College to Merge With State School After Financial Stress
-
Trump Administration Plans to Eliminate Dozens of Housing Offices
-
NYC Congestion Pricing Toll Gains Support Among City Residents
-
Buffalo’s Billion-Dollar Freeway Fix Is on Ice, But Not Because of Trump
The US president’s looming 25% tariff on Canadian goods — which briefly took effect last week before being paused until April — threatens to send the Canadian economy spiraling into a recession, spurring job losses and price spikes that fuel inflation. Canada’s vulnerability in the trade war has bubbled up in a credit market that has historically been largely indifferent to macro risks.
In response to all the saber rattling, bond holders are asking for bigger premiums. Canadian corporate credit spreads shot to the widest level relative to government bonds in about five months on Tuesday, according to a Bloomberg gauge. Bond sales from Canadian companies are slowing, as are offerings from foreign companies considering borrowing in Canadian dollars.
“One could infer that the trade war is already impacting the ability of Canadian corporates to fund at competitive levels in their domestic market,” said Etienne Bordeleau, vice president and portfolio manager at NinePoint Partners LP.
That kind of spread widening, unusual for Canada, shows the nation’s greater dependence on cross-border trade with the US, according to Randall Malcolm, senior managing director at asset management firm SLC management.
“For this reason, the Canadian bond market has also been more reactionary to the constant tariff news flow, and this additional volatility has made Canadian issuance more difficult,” Malcolm said in an interview.
Some relief could be on the way, the Bank of Canada is expected to deepen interest rate cuts later this week. That would lower the overall cost for domestic borrowers and counter the wider risk premium, which remains historically tight despite recent volatility.
In the meanwhile, the Canadian new issues market has largely ground to a halt since the tariffs were first put into place last Tuesday. The only deal to surface came from Canadian defense contractor Top Aces, which sold a C$200 million bond at a 9% yield. The deal comes just as Ottawa is getting more serious about boosting defense, now that the US is no longer a trusted ally.