Economic analysis

Canadian investors flock to high-risk debt

The appetite for risky debt is growing in Canada as investors search farther afield for ways to boost their portfolios, according to Royal Bank of Canada, the country’s largest corporate debt underwriter.

The bank told Bloomberg it predicts issuances of high-yield debt will hit $95 billion this year, led by a boom in mortgage securitizations, foreign bond purchases and below-investment grade junk bonds. High yield bond issuances climbed 32 per cent in the first quarter of the year, compared to 11 per cent in the U.S., according to Bloomberg data.

Large Canadian investors are increasingly looking at riskier debts as a way to hit their annual targets, which have been hammered by persistently low interest rates. That trend is expected to continue for the next few years, with RBC predicting Canada’s junk bond market would hit $35 billion in 2016, compared to $11 billion this year.