Iinvestors should learn to embrace Toronto, because the city Canadians love to hate pays a premium price to those willing to underwrite its deficits.
A pair of financings this week showed it's possible to exploit the difference between Canada's relatively deep market for provincial bonds, compared to the small following for debt from municipalities.
New Brunswick sold $300-million of 30-year bonds on Thursday, with a 4.8 per cent interest rate. RBC Dominion led the offering.
On Wednesday, the cash-strapped city of Toronto raised $400-million by selling 30 year bonds.
Here's what income-seeking investors want to exploit: credit rating agencies put a high rating on Toronto than New Brunswick - double A for the city, versus single A high for the province - yet Toronto paid 5.2 per cent interest on its bonds. IN fixed income circles, that 40 basis point gap is a big deal.
CIBC World Markets, RBC Dominion and Scotia Capital shared the honours on the city of Toronto offering.