Friday, July 4, 2008

Maple Bond Market Plunges

A buddy of mine sent me this Bloomberg article today. It seems the credit crisis has claimed yet another victim, the Maple bond market. I quote from the article:

"Canadian Maple bonds, the fastest- growing market for international borrowers a year ago, have almost disappeared this year as the credit crisis prompts Canadian investors to stay away from debt sold by foreign companies.

Four banks outside Canada raised just C$500 million ($492 million) selling Maple bonds, or foreign debt denominated in Canadian dollars, according to Bloomberg data. That compares with C$20.6 billion from 55 issues in the first half of 2007."

Canadian pension funds' appetite for foreign corporate bonds has evaporated, eroding fees for Canadian and other investment banks as the credit crisis and mounting global financial woes reduce demand for risky credit. The problem is that they still have tons of foreign debt in their books and it is hardly trading. That sounds a lot like the ABCP and CDO markets to me.

What made me chuckle in the Bloomberg article was the comment that "Canadian investors feel more comfortable owning a Canadian bank.'' I think we Canadians better buckle down for some hard times ahead. The oil/commodity boom is the only thing that kept our economy afloat but that will not last long. As shown in the chart above (click to enlarge), the MSCI Canada index is starting to weaken as the material sector took a big hit this week.

As I stated a couple of days ago, we might get a final blowoff rally in oil & commodity shares or this might be it. When the oil/commodity bubble finally bursts, all those big Canadian pension funds are going to head for the exit at the same time. OUCH!!!!!!!

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