March 2026: Canadian Monthly Corporate Bond Watch
PM spotlight
Randall Malcolm, MSc, CFA
Senior Managing Director & Portfolio Manager, Public Fixed Income
Risk-off sentiment carried into March, pushing corporate credit spreads about 5 basis points (bps) wider across the credit curve. The widening was broadly consistent across sectors, but real estate was the most affected as interest rates significantly increased. Despite volatile market conditions, corporate bond new issuance remained resilient during the month and pushed the year-to-date total volume up 32% compared to the end of March last year. The provincial credit curve also moved modestly wider over the month.
Government of Canada yields moved sharply higher, rising over 40 bps in the 2–3 year sector, while the long end increased by almost 30 bps. The spike in oil prices raised concerns that the Bank of Canada (BoC) may pivot back toward focusing on inflation risks. Overall, it was a very volatile rate environment. The FTSE Canada Universe Bond Index returned -1.97% in March as both rates and credit spreads increased.
In March, the BoC left its policy rate unchanged, but the market is now pricing in rate hikes by year end, after pricing in none last month. Canada's annual inflation rate slowed to 1.8% in February, though this may prove transitory given the rebound in oil prices, complicating the policy outlook and prompting a more hawkish market repricing. Meanwhile, the labour market weakened as net employment fell by 83.9K in February and the unemployment rate rose to 6.7% (from 6.5% in January), both worse than consensus expectations.
U.S./Canada relative value opportunities became more attractive over the month as swap pickup widened. This was partially offset by the expansion of spread differentials as Canadian corporate spreads increased by a bigger margin than their U.S. counterparts.
| item difference | Feb 27 | Mar 31 | Change |
|---|---|---|---|
| U.S./CA swap difference | 37 bps | 42 bps | 5 bps |
| U.S./CA OAS difference | -27 bps | -29 bps | -2 bps |
| U.S./CA relative value | 10 bps | 13 bps | 3 bps |
Credit spreads by quality and maturity (bps)1
During the month, corporate and provincial spreads widened.
Annuity proxy and related duration equivalent yields (%)2
We expect the annuity proxy to remain at the latest CIA guidance of 1.10% 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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