The corporate side of the Canadian short-term debt market will remain weak in 2004, Dominion Bond Rating Service Ltd. says in its annual review.

The DBRS study reports that 2003 saw short-term outstandings return to the same level as at the end of 2001. Government outstandings continued to increase (up 8.0% or $11.0 billion) for a third year, with most of the growth in Treasury bills (up 11.9% or $12.5 billion). Corporate outstandings declined, down 12.3% or $5.7 billion, for the same period (the last year-over-year decline was the time of the last major economic slowdown in 1991).

Banker’s Acceptances also continued to decline for a third year, down 13.6% or $5.1 billion. Term securitizations rose 37.1% or $9.3 billion.

“The decline in the corporate sector was largely driven by the weaker economic environment and the tightening of credit conditions,” DBRS says. “The continued use of securitizations and medium-term notes by the auto and auto parts companies was also an important contributor to continued decreases in corporate short-term debt.

“The non-government sector of the short-term debt market is expected to remain weak, but should register modest growth in 2004 as the economy starts to turnaround,” it says. “One of the key factors that could continue to limit growth in the non-government short-term debt market is the current trend of corporates using more term issuance, both directly and indirectly through term securitizations.

Growth in the BA market will largely depend on economic conditions and the willingness of banks to extend credit.

Given the potential uncertainty about bank mergers, the banks will probably be more conservative than typically would be the case during an economic recovery.”

“On the government side, it is expected that outstanding short-term debt will grow somewhat, given the weakness of governments1 fiscal results (and resolve) over the coming year.
Provinces will likely choose to use the term market over the short-term market for their additional financing needs, while the stock of Treasury bills will continue to move alongside the federal government1s fiscal results,” DBRS says.