(Updated April 2020)
As the Liberal Couillard government left office in October 2018, Quebec was borrowing at lower interest rates than Ontario for the first time in history.
For the first time ever, in June 2017 Standard & Poor's rated Quebec bonds as lower risk than Ontario bonds.
As the Liberal Couillard government left office in October 2018, Quebec was borrowing at lower interest rates than Ontario for the first time in history.
For the first time ever, in June 2017 Standard & Poor's rated Quebec bonds as lower risk than Ontario bonds.
Rating Agency
|
Province of Ontario Bonds
|
Province of Quebec Bonds
| ||
Rating
|
Rank out of 10 Provinces
|
Rating
|
Rank out of 10 Provinces
| |
Dominion (DBRS)
|
AA (low)
|
2nd (tied)
|
A (high)
|
5th
|
Moody’s
|
Aa3 (stable)
|
9th
|
Aa2 (stable)
|
3rd (tied)
|
Standard & Poor’s
|
A+
|
5th (tied)
|
AA-
|
3rd (tied)
|
Sources: Rating agency websites 1 July 2020. I calculated the ranks.
Note: Fitch also rates Ontario (AA-) and Quebec (AA-) bonds, but does not rate all Canadian provinces.
Critics discount the work of bond-rating agencies. And, there is academic evidence that rating agencies follow, rather than lead, the bond market. Bond raters may not be perfect, but their relative assessment of governments is usually accurate.
What counts is the interest rate that governments have to pay when they borrow. And, just as a low score means you are a better golfer, lower is also better for borrowers when it comes to interest rates.
Prior to the oil price collapse in 2014, interest rates on long-term bonds confirmed the DBRS and S&P ratings of Alberta bonds as the safest bet among provincial bonds in Canada with Ontario and Quebec bonds in the middle of the provincial pack.
Now financial markets are rating Ontario Quebec bonds as safer than Alberta and Saskatchewan bonds even though those western oil province bonds have higher ratings from the agencies.
Newfoundland bond rates had already moved well above comparable rates for Ontario and Quebec. Even when oil prices and Newfoundland government oil royalty revenues had recovered a bit, but I still said "caveat emptor" to all Newfoundland bond owners.
Source: TD Waterhouse Ask Yields in October 2018.
Note: The wide spread between federal and provincial bond yields partly reflects investors’ greater ability to trade federal bonds. The bonds above were issued at varying rates. The yields above indicate what interest rates the governments could borrow at on 10-1-2018 for long-term bonds maturing on the dates above.
Prior to the oil price collapse in 2014, interest rates on long-term bonds confirmed the DBRS and S&P ratings of Alberta bonds as the safest bet among provincial bonds in Canada with Ontario and Quebec bonds in the middle of the provincial pack.
Now financial markets are rating Ontario Quebec bonds as safer than Alberta and Saskatchewan bonds even though those western oil province bonds have higher ratings from the agencies.
Government Issuing Bond
|
Maturity Date
|
Yield
|
Canada (Federal)
|
6/1/2029
|
0.428%
|
Newfoundland
|
4/17/2028
|
1.55%
|
Saskatchewan
|
3/5/2029
|
1.359%
|
United States (US$)
|
8/15/2029
| |
Ontario
|
3/8/2029
|
1.23%
|
Quebec
|
10/1/2029
|
1.233%
|
BC
| 6/18/2029 | 1.19% |
Manitoba
|
9/5/2029
|
1.324%
|
Ontario
|
6/2/2037
|
2.329%
|
Quebec
|
12/1/2038
|
2.358%
|
Manitoba
|
3/5/2041
|
2.08%
|
Canada (Federal)
|
6/1/2041
|
0.89%
|
British Columbia (BC)
|
6/18/2040
|
1.83%
|
Saskatchewan
|
6/1/2040
|
2.085%
|
Ontario
|
6/2/2041
|
1.885%
|
Quebec
|
12/1/2041
|
1.888%
|
Source: TD Waterhouse Ask Yields 1 July 2020.
Note: The wide spread between federal and provincial bond yields partly reflects investors’ greater ability to trade federal bonds. The bonds above were issued at varying rates. The yields above indicate what interest rates the governments could borrow at on 7-1-2020 for long-term bonds maturing on the dates above.
Newfoundland bond rates had already moved well above comparable rates for Ontario and Quebec. Even when oil prices and Newfoundland government oil royalty revenues had recovered a bit, but I still said "caveat emptor" to all Newfoundland bond owners.
Government Issuing Bond
|
Maturity Date
|
Yield
|
Canada (Federal)
|
6/1/2029
|
2.468%
|
| British Columbia (BC) |
6/18/2029
| 3.02% |
Saskatchewan
|
3/5/2029
|
3.098%
|
United States (US$)
| 8/15/2029 |
3.06%
|
Ontario
|
3/8/2029
|
3.12%
|
Quebec
|
10/1/2029
|
3.106%
|
Newfoundland
| 8/27/2031 | 3.5% |
Manitoba
| 9/5/2029 | 3.188% |
| Ontario | 6/2/2037 | 3.25% |
Quebec
|
12/1/2038
|
3.24%
|
Manitoba
|
3/5/2041
|
3.337%
|
Canada (Federal)
|
6/1/2041
|
2.48%
|
Alberta
|
12/1/2040
|
3.23%
|
BC
|
6/18/2040
|
3.144%
|
Saskatchewan
|
6/1/2040
|
3.24%
|
Ontario
| 6/2/2041 | 3.25% |
Quebec
|
12/1/2041
|
3.23%
|
Note: The wide spread between federal and provincial bond yields partly reflects investors’ greater ability to trade federal bonds. The bonds above were issued at varying rates. The yields above indicate what interest rates the governments could borrow at on 10-1-2018 for long-term bonds maturing on the dates above.
If you think that the prospect of a provincial government being unable to make interest payments seems unlikely, so did Greek bondholders before the 2008 world financial sector crash. I certainly do not mean to suggest that any Canadian provincial government is heading for a Greek-style bond default. But, there is a chance that some provincial governments will face lower demand for their bonds.
Interesting to see that interest rates are higher in October 2018 than in July 2016.
Government Issuing Bond
|
Maturity Date
|
Yield
|
Canada (Federal)
|
6/1/2029
|
1.37%
|
| British Columbia (BC) |
6/18/2029
| 2.22% |
Saskatchewan
|
3/5/2029
|
2.43%
|
United States
| 8/15/2029 |
1.698%
|
Ontario
|
3/8/2029
|
2.27%
|
Quebec
|
10/1/2029
|
2.34%
|
Newfoundland
| 10/17/2029 | 2.87% |
Alberta
|
9/20/2029
|
2.45%
|
New Brunswick
|
9/26/2043
|
3.10%
|
Manitoba
|
3/5/2041
|
2.90%
|
Canada (Federal)
|
6/1/2041
|
1.74%
|
Alberta
|
12/1/2040
|
2.87%
|
BC
|
6/18/2040
|
2.655%
|
Saskatchewan
|
6/1/2040
|
2.898%
|
Ontario
| 6/2/2041 | 2.71% |
Quebec
|
12/1/2041
|
2.765%
|
PEI
|
6/27/2042
|
3.06%
|
Note: The wide spread between federal and provincial bond yields partly reflects investors’ greater ability to trade federal bonds. The bonds above were issued at varying rates. The yields above indicate what interest rates the governments could borrow at on 7-15-2016 for long-term bonds maturing on the dates above.
However, interest rates in October 2018 are still below summer 2014 levels.
Issuing Bond
|
Maturity Date
|
Yield
|
Canada (Federal)
|
06/01/2029
|
2.4597%
|
British Columbia
|
06/18/2029
|
3.22%
|
Saskatchewan
|
03/05/2029
|
3.223%
|
Newfoundland
|
10/17/2029
|
3.425%
|
Ontario
|
06/01/2031
|
3.487%
|
Canada (Federal)
|
06/01/2041
|
2.752%
|
Alberta
|
12/01/2040
|
3.487%
|
BC
|
06/18/2040
|
3.512%
|
Saskatchewan
|
06/01/2040
|
3.525%
|
Manitoba
|
03/05/2042
|
3.582%
|
Ontario
|
06/02/2041
|
3.677%
|
Quebec
|
12/01/2041
|
3.745%
|
Bond market verdict on the Wynne government: Ontario bonds had the 3rd lowest yields among 10 provinces when the Wynne Liberals were defeated and left office in June 2018 with only BC and Quebec boasting lower interest rates vs. Ontario had the 6th lowest yields when the Wynne Liberals were elected with a majority in 2014 with only Quebec and the 3 Maritime provinces paying higher interest rates at that time on long-term bonds.
Bond market verdict on the Couillard government: Quebec bonds had the 3rd lowest yields among 10 provinces when the Couillard Liberals were defeated and left office in October 2018 with only BC and Saskatchewan boasting lower interest rates vs. Quebec had the 7th lowest yields when the Couillard Liberals were elected with a majority in 2014 with only the 3 Maritime provinces paying higher interest rates at that time on long-term bonds.
Let's see if the anti-immigrant populists of the Legault government in Quebec and the anti-downtown-Toronto populists of the Ford government in Ontario can do better over the next four years.
