April 2026: Canadian Monthly Corporate Bond Watch
PM spotlight
Randall Malcolm, MSc, CFA
Senior Managing Director & Portfolio Manager, Public Fixed Income
Risk-on sentiment reversed the prior two months, driving corporate credit spreads approximately 9-10 basis points (bps) tighter across the credit curve. Tightening was broadly consistent across sectors with energy emerging as a strong performer, supported by pipeline developments and oil price movements. Infrastructure lagged as a low-beta play. Real estate demonstrated significant strength with robust demand for new issuers and merger-and-acquisition activity. The sector benefited from yield-seeking behavior as investors reached for spread. Despite the spread tightening, corporate bond new issuance remained strong in April, reaching record volumes in the banking sector and pushing year-to-date volume to approximately $70 billion – a 76% increase versus the $40 billion recorded for the comparable period last year. Robust new corporate issuance supply in short- and mid-term maturities and was met with strong demand, while long-end issuance remained limited.
Government of Canada yields increased, particularly in the front end of the curve, resulting in curve flattening as market participants priced in expectations of further inflation-related volatility. Five-year and 10-year real return bond breakeven inflation measures moved modestly higher compared to March. Bond market performance was supported by credit spread tightening, which mostly offset the effect of yields moving higher in the month.
In April, the Bank of Canada maintained its policy rate at 2.75%, while Canada's annual inflation rate increased to 2.4% in March. The uptick in inflation, driven partly by higher oil prices and energy-related costs, prompted market repricing. Employment conditions normalized in April. The market is currently pricing in two rate hikes by year end, reflecting expectations of potential inflation pressures.
U.S./Canada relative value opportunities remained mostly unchanged but contributed to relative performance over the month as swap pickup narrowed and U.S. corporate spreads narrowed by a slightly larger margin than their Canadian counterparts.
| item difference | Mar 31 | April 30 | Change |
|---|---|---|---|
| U.S./CA swap difference | 42 bps | 41 bps | -1 bps |
| U.S./CA OAS difference | -29 bps | -31 bps | -1 bps |
| U.S./CA relative value | 13 bps | 11 bps | -2 bps |
Credit spreads by quality and maturity (bps)1
During the month, corporate and provincial spreads tightened.
Annuity proxy and related duration equivalent yields (%)2
We expect the annuity proxy to decrease from the latest CIA guidance to 1.00% based on the current levels of credit spreads and the current shape of the risk free curve. The actual annuity proxy will also reflect changes based on annuity market competition, asset availability and changing longevity views, and will differ from this hypothetical estimate.
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Unless otherwise stated, all figures and estimates provided have been sourced from Bloomberg and SLC Management internal credit research. The information provided on issuance is based on internal experience. Unless otherwise noted, all references to “$” are in CAD. Any reference to a specific asset does not constitute a recommendation to buy, sell or hold or directly invest in it. It should not be assumed that the recommendations made in the future will be profitable or will equal the results of the assets discussed in this document.
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1. Credit spreads by quality and maturity (graph)
Option adjusted spreads of the securities included in the FTSE Canada Universe Bond Index for different maturity buckets. Quality breakdown based on DBRS ratings. “FTSE®” is a trade mark of FTSE® International Limited and is used under license.
2. Annuity proxy and related duration equivalent yields: (graph)
The Annuity Proxy (Actual) references the appropriate spread to be added to the Government of Canada marketable bonds, average yield series, over 10 years (CANSIM V39062) as a proxy for the annuity purchase yield for a medium duration pension plan, as published in Canadian Institute of Actuaries (“CIA”)’s educational notes on “Assumptions for Hypothetical Wind-Up and Solvency Valuations” at various effective dates (“CIA’s educational notes”). Duration equivalent corporate and provincial yields are the duration neutral (relative to the liabilities) yields based on a blend of mid and long term FTSE Canada corporate and provincial indices. The Annuity Proxy (Hypothetical) is based on an internal SLC Management auto regression model that seeks to explain the historical “Average of the Three Most Competitive Hypothetical Quotes” (“hypothetical quotes”) as published in the CIA’s educational notes, using FTSE Canada provincial and corporate spreads, and changes in the shape of the Government of Canada risk free yield curve as explanatory variables. According to the CIA’s educational notes, these hypothetical quotes are given weight by the CIA in determining the annuity proxy guidance, in addition to data collected on actual annuity purchases and bona fide quotations. For greater certainty, the actual and bona fide quotations used by the CIA are not publically available and have not been considered in our determination of the Annuity Proxy (Hypothetical).
Hypothetical performance data does not represent the performance of actual client portfolios. Trading and other costs have not been deducted from the performance data (e.g. commissions and custodial fees). Hypothetical results may differ significantly from actual performance, as there may be variations in the percentage of each security held, the timing of security purchases and sales, and the availability and/or price of a particular security over time as the portfolio does not reflect actual market conditions. Forward-looking statements are speculative in nature and may be subject to risks, uncertainties and assumptions and actual results which could differ significantly from the statements. Do not place undue reliance upon such forward-looking statements.
Forward-looking statements are speculative in nature and may be subject to risks, uncertainties and assumptions and actual results which could differ significantly from the statements. Do not place undue reliance upon such forward-looking statements.
US/CA relative value (table)
US/CA swap difference is the weighted-average pickup that results from the cross currency swap based on the key rate durations of the Bloomberg Barclays US Long Corporate Index. US/CA OAS difference is the difference between the option adjusted spread of the Bloomberg Barclays US Long Corporate Index and the Bloomberg Barclays Canadian Long Corporate Index.
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