MuniciPolitics
It might be surprising to some bond investors that Quebec municipalities cannot run deficits, and generally issue debt under only two scenarios:
- To refinance existing debt
- To fund infrastructure projects to improve services to its population.
In late 2015, the Liberal Party was elected with a plan to nearly double federal infrastructure investments over the following decade. “Every dollar we spend on public infrastructure grows our economy, creates jobs, and strengthens our cities and towns,” said Justin Trudeau during his 2015 election campaign. This commitment was particularly important for the Quebec municipal bond market as government money was only partially covering these new infrastructure projects and municipalities had to issue debt to cover the balance of the costs. Consequently, Quebec municipal bond total issuance has risen each year since 2017.
There’s an old saying in the bond world: “supply creates demand.” This is exactly what happened in 2019 for Quebec municipal bonds – total issuance reached an all-time high of $3.7 billion while investors hungry for that debt pushed spreads over provincial bonds down significantly. Thanks to all the issuance, liquidity was higher this year than what we’ve seen in recent years, allowing for tactical allocations in bond portfolios. We were particularly active with Quebec non-rated municipal bonds, strategically increasing our holdings in Q1 at wider spreads and cashing them in Q3 while reinvesting all of our maturities. We’re not here to talk politics, but the recent Liberal Party win could be a tailwind for Quebec municipal bonds going forward.
Disclosures
This information is prepared by Fiera Capital Corporation (“Fiera Capital”) and is intended for use by residents of Canada only. The information and opinions expressed herein are provided for informational purposes only, are subject to change and should not be relied upon as the basis of any investment or disposition decisions. Past performance is no guarantee of future results. All investments pose the risk of loss and there is no guarantee that any of the benefits expressed herein will be achieved or realized. Valuations and returns are computed and stated in Canadian dollars, unless otherwise noted.
The information provided herein does not constitute investment advice and it should not be relied on as such. It should not be considered a solicitation to buy or an offer to sell a security. It does not take into account any investor’s particular investment objectives, strategies, tax status or investment horizon. There is no representation or warranty as to the current accuracy of, nor liability for, decisions based on such information. Any opinions expressed herein reflect a judgment at the date of publication and are subject to change. Although statements of fact and data contained in this presentation have been obtained from, and are based upon, sources that we believe to be reliable, we do not guarantee their accuracy, and any such information may be incomplete or condensed. No liability will be accepted for any direct, indirect or consequential loss or damage of any kind arising out of the use of all or any of this material.
Views expressed regarding a particular company, security, industry or market sector should not be considered an indication of trading intent of any funds or accounts managed by any Fiera Capital entity. Each entity of Fiera Capital only provides investment advisory services or offers investment funds in the jurisdictions where such member and/or the relevant product is registered or authorized to provide such services pursuant to an exemption from such registration.
Related Insights
Fixed Income Monthly Monitor – January 2022
Canadian Yield Curve Overview
Is the Bond Market Getting Ahead of Itself?
Q1 2022 Investment Outlook & Portfolio Strategy