Dominion Bond Rating Service predicts that issuance of short-term debt will grow in 2006, after a strong 2005.

DBRS makes the prediction in its annual review of the Canadian short-term debt market. The study provides a discussion of the short-term debt market in 2005, including changes in the composition of the market and the factors contributing to these changes, as well as rating changes that took place in 2005.

Total outstandings of the Canadian short-term debt market significantly increased from 2004, the report says. End-of-year total outstandings fluctuated between $282 billion and $291 billion for 2000 through 2004, but finished 2005 at $323 billion, an increase of $31.9 billion over the prior year.

Corporate outstandings were up slightly by $777 million. Short-term securitized debt had a large increase, $18.5 billion. Bankers’ Acceptances also grew significantly, up $6.54 billion. Government totals went up $6.01 billion.

Corporate outstandings increased slightly as the credit cycle continued to improve in 2005, DBRS said. “Foreign bank and finance companies continued to lead the way and represent all of the growth in corporate outstandings,” it added.

Securitized outstandings had tremendous growth due to the increase in collateralized debt obligations. Government outstandings have been stable over time, though federal Treasury bill issuance has been growing steadily, it noted.

DBRS expects that corporates will grow modestly in 2006 in accordance with the economy, “reflecting the ongoing presence of foreign banks and finance companies to tap the commercial paper market.”

“Banks have loosened their restraint on borrowing over the past several years, so BAs may continue to increase, provided yield curves for BAs remain comparable to ones for long-term debt,” it suggested.

“Demand for high quality securitized products has not abated, and should contribute to growth in this area,”’ it noted. “Total government issuance of short-term debt is expected to grow, as the federal government gradually increases its exposure to short-term and/or floating rate debt. This suggests that overall short-term debt outstandings are likely to increase again through 2006.”