Despite the brightening economic picture BMO Nesbitt Burns is not ready to revise its bond recommendations. Instead, BMO is looking for the Federal Reserve and the Bank of Canada to boost short-term rates roughly 100 basis points by the end of the year.

“The market is priced for even more tightening,” says BMO. “We are maintaining our recommendations. Corporate spreads have narrowed somewhat on recovery prospects and as investors look for higher yield. However, the earnings background remains weak despite the turnaround.”

There was very little Provincial bond issuance last month. “The only new issue into the Canadian market was a $500 million FINQ (Quebec) deal, with a maturity of 7.5 years. However, with provinces deep into budget season, we expect issuance activity to heat up shortly. There is still no word on the Ontario budget, although with no election call expected for this spring, a budget remains a possibility.”

Corporate issuance rose to $1.8 billion in March, up from $1.4 billion in the prior month, it says. “The supply was well received, as investors continue to seek new product, tightening secondary market spreads during the month – except telecoms.”

The wait for new asset- backed securities issuance continues, says BMO. “The lack of supply has created a situation where investors are reluctant to part with product. Accordingly, spreads remain well bid, giving issuers an opportunity to take advantage, even though few have.”