CAPITAL MARKETS REPORTER
Canadian companies are selling bonds at the fastest pace in a year and the debt market is opening to a wider swath of borrowers, signalling a further thawing in the credit freeze.
Amid the worst credit market conditions in a generation, Canada's bond market is more open than perhaps any in the world. The country is not just drawing local borrowers, but global companies like Thomson Reuters PLC that could choose to tap other markets.
There have been 13 corporate bond sales totalling $5.7-billion in just five weeks since the beginning of March, including a $750-million sale by Thomson. That's a significant pickup from the sluggish pace of sales since mid-2008.
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"That [market] really has exploded open in the last few weeks in Canada," said Eric Lascelles, chief economics and rates strategist at TD Securities Inc.
There is still less credit to go around because of the credit crunch, and companies facing serious trouble due to the recession will have to pay more to borrow - if they can find a lender at all. But for solid borrowers, things are looking up.
The renewed access to credit may also take pressure off the Bank of Canada, which has signalled a willingness to step in if needed and support corporate bonds by buying debt.
The change is clear in the list of sellers. Issuers are now not just companies viewed as ultrasafe, like pipelines, and financial firms that need cash no matter how rough the markets.
In addition to Thomson, cable company Shaw Communications Inc. and mall owner RioCan Real Estate Investment Trust have sold bonds.
"For a while there it was open to only a select group of issuers, and now it seems to be broadening," said Mark Chandler, a fixed-income strategist at RBC Dominion Securities Inc.
The improvement isn't confined to longer-term corporate borrowing. Some bank borrowing costs have steadied at levels not far from precrisis costs, which is feeding into a recent drop in mortgage rates.
And rates in the so-called money market, where companies borrow for weeks at a time, have stabilized.
All of which may take the pressure off Bank of Canada Governor Mark Carney.
By just suggesting that he is open to the idea of buying corporate debt - known as "quantitative easing" - Mr. Carney may encourage more companies to try borrowing via bonds, helping to reopen the market further.
"My preference would be the Bank of Canada not have to engage in quantitative easing and have it come back naturally," Mr. Lascelles said.
Canada's market is opening up earlier than some others around the globe for a number of reasons.
The country's solid banking system means there is less competition with massive government and bank bond offerings, such as those that are occurring in the U.S. to raise money for bailouts.
There's also a growing understanding on the part of investors about how companies will fare in the recession, and the outlook for the economy, while gloomy, at least doesn't seem to be getting markedly worse by the day.
For many investors, bonds seem a better bet in the current recession than stocks because in the event a company fails, bondholders usually get more back than stock holders.
On the corporate side, treasurers are now more able to get a good sense of what they will pay to borrow in the bond market.
"Before, you weren't certain what was a good price because you didn't really know where things were trading," Mr. Chandler said.
Still, companies would be wise to act while the markets are open, Mr. Lascelles said. In mid-2008, when conditions in the bond market eased, companies that didn't take advantage regretted it when markets shut down again later in the year.
Those that did "were probably thanking their lucky stars," he said.