2024 Canadian Public Sector Issuers Roundtable Series

Public Sector Issuers Roundtable Report

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1. Canada Outlook: economic growth, inflation, and Bank of Canada policy rate all to move lower in 2025: Growth is widely expected to underwhelm in 2025 as the effects of mortgage renewals, reduced immigration growth, and potential trade tariffs weigh on the general outlook

2. U.S. Tariffs pose a looming challenge for the Canadian economy: The effects of trade tariffs and retaliatory measures pose a significant risk to the Canadian economy, casting a shadow of uncertainty on growth forecasts

3. Declining immigration levels expected to provide relief on capacity pressures and contribute to lower growth: The plan to slow the growth in immigration levels is expected to be a headwind for economic growth, while allowing time to alleviate recent pressures on capacity. The effects of these policies will likely be felt over a number of years

4. 2024 was a record year for domestic and offshore public sector debt issuance; the pace of issuance is expected to moderate in 2025: Canadian Public Sector issuance across all currencies reached C$288.0 billion in 2024, 36% higher than 2023 and a new record for aggregate issuance

5. Year of firsts for Canadian public sector issuers: Canadian provinces issued a record C$51 billion equivalent in offshore markets; with many issuers expanding their borrowing programs into new currencies and tenors

6. Credit spreads near the tights, is the trend sustainable? With global credit spreads at the tighter end of the range, risks are tilted towards a retracement in 2025

SSA Maple Roundtable Report

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1. Slightly Increased Funding Programs from Higher Disbursements
SSA funding requirements saw a slight increase throughout 2024 compared to 2023 to reflect stronger disbursements, despite continued challenging conditions with geopolitical concerns and a various number of global elections towards the end of the year. Market participants noted challenging EUR markets and the expectation that the trend may persist in the new year. However, their focus remains in core currencies such as USD for Supranationals and EUR for European issuers, while continuing to seek for opportunities in other currencies where funding levels are attractive.

2. ESG Themed Bonds Driven by Investor Demand
ESG is still a main part of SSA funding programs globally. ESG issuance continues to be favored among Maple SSA issuers and investors in the Canadian market; all 4 benchmark CAD SSA transactions in 2024 have been in ESG format, ranging across Gender, Green, and Sustainable bonds. Issuers noted that they are continuing to the explore theme bonds, and that sustainability debt will continue to be a focal point for SSA issuers if there is a healthy pipeline of projects and sufficient investor interest.

3. Awaiting the Right Timing To Return To the Maple Market
Market participants value the CAD Maple market as a currency to diversify their funding program, however in 2024 due to swap level movements they have not been able to access the market for a prolonged period of time due to being offside versus their core funding currencies such as USD. All C$3.7 billion of the Maple supply in 2024 has been in the first 4 months of the year and quiet for the remainder of the year. SSA issuers remain positive about the CAD market, and noted if there are investor demand for longer dated issuances, they can go for duration if levels are attractive compared to their core funding levels.

4. Forward Looking/Challenges
Looking ahead to 2025, SSA issuers anticipate having to navigate higher funding costs, compressed issuance windows and competing supply across core issuance currencies. Market participants however are cautious but optimistic, and will continue to be nimble about their funding program heading into the new year.

Municipal and Agency Roundtable Report

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1. Affordable Housing Remains the Most Significant Issue
The demand for affordable housing has been outpacing supply, largely driven by the immigration growth and place pressure on the City’s resources to deliver. This issue hit the hardest at the lowest income group, with a particularly large gap in housing supply for purpose built rental and community housing. Housing delivery continues to be a priority for all level of governments, there are various provincial and federal housing funds expected to be delivered in 2025 to meet housing starts targets and accelerate constructions. Meanwhile municipalities are actively planning housing projects and homeless remedy plan for 10-year or longer.

2. Public Transits Revenue Not Fully Recovered
While transit ridership recovered near 80% of pre-pandemic levels at most regional governments, revenue shortfalls persisted due to slow returns to offices in downtown. The increasing adoption in zero-emission vehicles also posed a challenge as it decreased fuel-tax revenue, although it is beneficial for the society in the long term, it is not easy to replace the fuel-tax part of the revenue source. Municipalities have received temporary funding from provincial governments to cover for transit revenue shortage, and implementing projects on expanding transit network. Overall ridership is expected to improve in 2025.

3. Immigration Acted as A Double-Edged Swords
Immigration has been a key part of economic growth and culture diversity, however the rapid unplanned increase in population led do a significant growth in demand and adding pressure for the municipalities to provie sufficient access to public health, housing, and social services.

4. Inflation Driven Cost Eased but Still Persist
While the rate of consumer price inflation has slowed in 2024, labour and supply-cost inflation still reside, fueling challenges to both operating budgets and capital project costs, particularly for transit s and housing infrastructure. Municipalities have to be careful and innovative on fiscal management and strategically prioritize projects to maintain essential services. Some cities have pivot to increasing non-tax revenue such as advertisements and sponsorship.

5. Borrowings Expected to Elevate in 2025
municipal and agency issuers continue to offer investors attractive value relative to other government credits as local governments must balance their operating budgets. Total municipal and agency supply reached C$5.799 billion in 2024, making this year the 2nd most active on record with supply just below the record high of C$5.892 billion seen in 2021. Municipal and agency borrowings are effected by the scope, scale and timing of projects, as well as interest rates and investor sentiment. As capital growth spending accelerates and the increasing number of ESG projects, municipal and agency borrowers are expected to have a slightly larger funding program than 2024.

6. Increased Involvement in ESG
Total Green, Social and Sustainable bond offerings from municipal and agency issuers reached C$2.4 billion in 2024, up from the C$1.8 billion seen in 2023 and accounted for more than 40% of the aggregate municipal and agency debt offerings in 2024. Of note, Ottawa printed their inaugural sustainability bond this year which followed the City’s development of their sustainable debenture framework. Many municipalities and agencies issue ESG bonds based off their sustainable bond framework, with majority of the UoP flowing into reducing carbon pollution, building affordable housing and raising community awareness.

In addition, we encourage you to view the RBC Government Finance Public Sector Debt Market update that is published monthly. The December 2024 edition includes a year-end recap of issuance trends by the Canadian governments in 2024.

• Domestic public sector supply reached C$188.5 billion in 2024 following C$12.1 billion of total supply in December 2024, 26% higher than the C$150 billion seen in 2023
• Issuance across all currencies and sectors reached C$288.0 billion in 2024, 36% higher than the C$211.8 billion seen in 2023
• Total Canadian Public Sector Entities supply finished at C$40.4 billion, 8.6% higher than the C$37.2 billion through 2023 and representing a record year for the sector
• The Maple SSA market had its lightest year since 2017 as C$3.7 billion in total supply was completed during the year, ~50% lower than the C$10.1 billion seen during 2023 which was a record setting year
• Total municipal supply reached C$5.799 billion in 2024, making this year the 2nd most active on record with supply just below the record high of C$5.892 billion seen in 2021
• ESG issuance remained comparable to volumes seen in 2023 with C$16.5 billion of supply priced during 2024 across Green, Social, Gender and Sustainability bonds

Source: RBC Capital Markets as at December 29, 2023

Transactions for Canadian Public Sector Issuers – Domestic

Transactions for Canadian Public Sector Issuers - Offshore

Transactions for Maple Offerings