Corporate Bond Market Trends 25 January 2016 Stock of corporate - PowerPoint PPT Presentation

Corporate Bond Market Trends 25 January 2016

Stock of corporate bonds has increased Debt Securities Outstanding (maturity > 1year) 1,400 14,000 US - Financials (LHS) 1,200 US - Non-Financial Corporates (LHS) 12,000 Canada - Financials (RHS) 1,000 10,000 Canada - Non-Financial Corporates (RHS) USD (bn) 800 CAD (bn) 8,000 600 6,000 400 4,000 200 2,000 0 0 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 Source: Fed Flow of Funds, Statistics Canada 2

Trading volumes have increased, but average trade sizes have been relatively stable 2010 2011 2012 2013 2014 2015 Canada US Canada US Canada US Canada US Canada US Canada US* Total Trading 233 2,631 240 2,619 275 2,758 332 2,992 334 3,029 360 1,428 Volume ($bn) Average Trade 0.60 1.50 0.57 1.40 0.50 1.30 0.58 1.30 0.61 1.20 0.65 1.25 Size ($m) Turnover 18% 37% 18% 36% 19% 31% 23% 31% 22% 30% 20% 28% Proxy *Up to May 29, 2015 Note: Canadian and US amounts are in the currencies of their respective countries. Turnover is calculated as the median across all individual bonds (each bond’s trading volume divided by the bond’s outstanding amount) Source: TRACE, CDS, Statistics Canada, Bloomberg, SIFMA, Bank of Canada calculations 3

Canadian bond trading volumes have grown Trading Volume 4000 Mortgage Bonds Corporate Bonds Provincial Bonds 3500 3000 2500 (C$bn) 2000 1500 1000 500 0 2010 2011 2012 2013 2014 2015 Source: CDS, Bank of Canada calculations 4

Trading of corporate bonds is concentrated in small number of issues Trading Concentration 2006 2008 2010 2012 2014 2015 60% 60% Canada United States Share of Annual Trading Volume 50% 50% 40% 40% About 2,500 unique About 22,000 unique bonds traded per year bonds traded per year 30% 30% 20% 20% 10% 10% 0% 0% 500 1000 1500 2000 2500 100 200 300 400 500 Most Traded Least Traded Most Traded Least Traded Source: TRACE Source: CDS 5

Bond trading decreases as a bond ages Distribution of trading volume by age of the bond Canada United States 50% 50% 40% 40% 30% 30% 20% 20% 10% 10% 0% 0% Less than 1 year 1-2 years 2-3 years 3-4 years 4-5 years Less than 1 year 1-2 years 2-3 years 3-4 years 4-5 years Less than 1 year 1-2 years 2-3 years 3-4 years 4-5 years Age of Bond Less than 1 year 1-2 years 2-3 years 3-4 years 4-5 years Less than 1 year 1-2 years 2-3 years 3-4 years 4-5 years Less than 1 year 1-2 years 2-3 years 3-4 years 4-5 years Age of Bond 2010 2012 2014 2010 2012 2014 Source: TRACE Source: CDS 6

New corporate issuance in Canada has increased Gross New Corporate and Financial Issuance in Canada 120 Non-Fin Corporates Financials 100 Gross New Issuance ($bn) 80 60 40 20 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Source: Bank of Canada 7