Issues with consumer-backed assets are becoming more commonplace
Canada’s non-bank mortgage lenders might begin issuing risky debt soon, observers say.
This will stem from the current trends in the Canadian bond market, with consumer-backed issues taking pre-eminence in terms of activity and investor preference.
DBRS managing director and head of Canadian structured finance Tim O’Neil predicted that such debt offerings from non-bank lenders will become more available in the very near future, joining auto and credit-card backed deals in increased popularity.
“Credit delinquencies are showing low numbers so it’s good timing to issue,” AllianceBernstein Holding LP portfolio manager Yves Paquette told Bloomberg.
Paquette said that his firm is managing assets worth a total of $550 billion at present, but it is also reducing its exposure to Canadian credits as these are more exposed to the risk of “a cyclical slowdown.”
The recently increased volume of consumer-backed bonds has accompanied slow consumer spending and weak inflation numbers. In addition, 10-year government bond yields are trading considerably below the overnight rate set by the Bank of Canada.
However, the nation’s unemployment rate is also currently enjoying a four-decade low of 5.8%, and the Canadian economy saw its strongest month-over-month growth in eight months last January.
On the other hand, the International Monetary Fund’s recent predictions of the national economy growing by 1.5% this year and by 1.9% in 2020 are far more positive than called for by present fundamentals, Deloitte Canada chief economist Craig Alexander argued.
“They’re too optimistic,” he said in an interview with the Financial Post.
Alexander projected Canadian GDP growth to settle at 1.3% in 2019, and then see only a minimal gain to 1.5% in 2020.
“The reality is that many people’s expectations of what represents good growth are actually too high.”
