In its annual review of the Canadian short-term debt market, DBRS has compiled extensive data to analyze the past year and project some expectations for 2009.

“Overall, the short-term market in Canada grew 11% in 2008,” says Peter Bethlenfalvy, co-president of DBRS Canada. “The concerted efforts of the world’s central banks and the G20 to provide liquidity and restore confidence clearly had the intended effect. Since December 2008, corporates have increased their outstandings by $1.1 billion and evidence is accumulating that current demand is outstripping supply, which may have an impact on pricing in the future.”

Government issuance dominated the Canadian short-term market in 2008, representing more than 60% of the total outstandings, increasing $66 billion, followed by banks, at $4.4 billion, and corporations, at $3.3 billion.

“The increased issuance by Canadian governments primarily reflects actions taken at the federal level to mitigate the impact of the credit crunch on Canada’s financial institutions, as well as the weakening fiscal results and higher capital requirements in certain provinces,” says Bethlenfalvy.

Corporate commercial paper outstandings on a whole declined $9.4 billion, or 24%, during 2008, according to the DBRS report. However, when foreign banks, investment banks and finance companies are excluded from the calculations, outstandings actually rose $3.3 billion, or 13.8%.

The real contraction in the market occurred with bank-sponsored asset-backed commercial paper (ABCP) issuance, which dropped $24 billion, or 32%, during the year, followed by foreign financial issuers at $12.7 billion, 90% less than in 2007.

“The exodus of foreign financial borrowers,” observes Bethlenfalvy, “was due to the global credit crunch, the significant deterioration of asset quality and the retrenchment to home markets globally.”

DBRS expects the short-term market in Canada to grow 5% to 10% in 2009, primarily due to increased government issuance.

“Early evidence through the first quarter of 2009 would indicate a thawing in the Canadian CP market,” says Bethlenfalvy, “as investors again begin to cautiously search for yield and to diversify credit exposure. Beneficiaries will continue to be governments, banks and corporations with strong fundamentals and liquidity support.”

IE