December 2022: Canadian Monthly Corporate Bond Watch

PM spotlight

Randall Malcolm, MSc, CFA, Senior Managing Director & Portfolio Manager, Public Fixed Income

Corporate credit spreads remained largely unchanged in December. After setting a torrid pace in November, new corporate issuance in Canada slowed down in the final month of 2022. The financial sector was the biggest beneficiary of the issuance slowdown, seeing the most credit spread tightening as investors finally had a chance to digest the sector’s record 2022 new issuance supply. On the provincial side, December’s spread movements remained flat as new government issuance was easily absorbed by investors.

Government of Canada (GoC) bond yields generally increased in December. The two-year GoC bond yield increased by 17 basis points (bps) while the 10-year GoC bond yield increased by 34 bps, unwinding some the inversion of the 2–10-year segment of the yield curve (2-year at 4.06% and 10-year at 3.30%). The increase in yields detracted from the absolute performance of -1.65% posted by the Canadian fixed income market (measured by the FTSE Canada Universe Bond Index) during the month.

Canada’s annual inflation rate, as measured by the Consumer Price Index (CPI), decreased slightly to 6.8%, marginally above market expectations of 6.7%. In an effort to control inflation, the Bank of Canada (BoC) may increase its benchmark overnight lending rate again in January. The central bank also announced that any further hikes will now be data dependent, as well as being based on movements in inflation rates as the BoC waits to see the how its previous rate hikes will impact the economy. 


U.S./Canada relative value was largely unchanged during the month and remains below historical average.


Nov. 30

Dec. 30


U.S./CA swap difference

42 bps

45 bps

3 bps

U.S./CA OAS difference

-40 bps

-42 bps

-2 bps

U.S./CA relative value

2 bps

3 bps

1 bps

Credit spreads by quality and maturity (bps)

Corporate and provincial spreads were largely unchanged this month.

Annuity proxy and related market spreads (%)

We expect the annuity proxy to remain unchanged at 1.50% (our estimate of the unrounded annuity proxy is 1.45%) 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.

The content of this presentation is intended for institutional investors only. It is not for retail use or distribution to individual investors. All investments involve risk including the possible loss of capital. This presentation is for informational and educational purposes only. Past performance is not a guarantee of future results. 

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 internally. 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.

The information contained in this presentation is not intended to provide specific financial, tax, investment, insurance, legal or accounting advice and should not be relied upon and does not constitute a specific offer to buy and/or sell securities, insurance or investment services. Investors should consult with their professional advisors before acting upon any information contained in this presentation.

SLC Management is the brand name for the institutional asset management business of Sun Life Financial Inc. (“Sun Life”) under which Sun Life Capital Management (Canada) Inc. operates in Canada. More information are available at

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.

Annuity proxy and related market spreads: (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”). Corporate and provincial spreads are the duration neutral (relative to the liabilities) option adjusted spreads 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).

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. 

U.S./CA relative value (table)

U.S./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 U.S. Long Corporate Index. U.S./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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© SLC Management, 2022