Canada rises above tariff turmoil with record order bookCanada's deteriorating relations with the US didn't deter investors from jumping into the sovereign's annual US dollar issuance on Tuesday, with the deal seeing record demand even as US president Donald Trump threatened to tighten the screws with further tariffs. An hour before the syndicated bond priced, Trump announced he would double levies on Canadian steel and aluminium imports to 50% in the latest clash of a trade war that the president has fomented since he returned to the White House in January. He rowed back on that threat hours later, though the initial 25% rate still took effect on Wednesday. Canada subsequently retaliated with its own measures against US goods. While the headlines make life tough for economists and analysts, bond investors have become acclimatised to Trump's volatile nature, said a banker away from Canada's deal, with issuers still able to clear deals in the US dollar market despite the risks. Canada (Aaa/AAA/AA+), moreover, is one of the highest-rated sovereigns in the world, with even better ratings than the US. "Whatever noise there is in the press, Canada is an extremely strong country with obvious institutional strength," said a lead banker. Its status meant that neither a weaker market tone nor the tariff tantrums stopped Canada from scoring its largest US dollar order book yet, according to IFR data, with demand reaching US$13.9bn thanks to a yield of 4.075%. The scale of demand supported a US$3.5bn five-year issuance via BMO, Barclays, CIBC, JP Morgan and RBC, which landed at 11bp over Treasuries, 3bp inside initial price thoughts. That looked tight on a relative value basis – the five-year point of one of the US dollar market's best-followed SSAs, the European Investment Bank, was trading around 17bp over Treasuries on the day of the deal, according to LSEG data. "Its business as usual for them," the lead said. "They borrow US dollars for their foreign exchange reserves." Canada has done one US dollar benchmark, always a five-year, nearly every year since 2020. The only exception was 2022. Canada's regular issuance in the currency was one reason it got the demand it did, the lead said. "Everybody knows they're coming; they like the name; you know you can roll over your investment." Despite the noise, the country is in a relatively solid position, said BeiChen Lin, head of Canadian strategy at Russell Investments. “We do think recession risks in Canada are elevated," Lin said. "But if a recession does materialise, the Bank of Canada may actually cut rates aggressively to bolster the economy. For that reason, government bonds could be a powerful diversifying investment." Lin also said Canada's fiscal position inspires confidence. "Canada’s debt-to-GDP ratio stood at 32% in the third quarter of 2024, lower than that of several of its G7 peers." Not everyone, though, is as positive about Canada's situation. "Trade wars require fiscal loosening – and that’s bad for bonds," said Malin Rosengren, a portfolio manager at RBC BlueBay Asset Management. Resolving Canada's dispute with the US will be at the top of former Bank of England governor Mark Carney's in-tray after he is sworn in as prime minister on Friday to replace Justin Trudeau.
Bellwether