Alberta bonds dumped
Manulife Asset Management Inc., the investment arm of Canada’s largest insurer, swapped most of its Alberta bonds for British Columbia debt amid concern the province’s coffers will be slow to recover from historic floods.
The $1 billion Manulife bond fund reduced its allocation of debt from Alberta to 2.2 per cent from the 4.9 per cent it held June 10, while raising its exposure to British Columbia to 10 per cent from 9 per cent.
“British Columbia is in much better shape than Alberta at this time,” Terry Carr, who helps oversee $16 billion as head of Canadian fixed-income at Manulife, said from Toronto. “In the near-term, they are in a surplus situation, while Alberta is going to be in a deficit situation.”
The Alberta government committed $1 billion to pay for relief from the worst flood in the province’s history as Premier Alison Redford said plans to balance the provincial budget next year would be delayed.
Uncertainty over the negative financial impact on the province, including its top credit rating and ability to meet its budget goals, is keeping Manulife away, Carr said.
Intact Financial Corp., the largest property and casualty insurer in Alberta, is forecasting a $257 million earnings hit in the second and third quarters due to the natural disaster, the company said Monday.
British Columbia has a “low debtto-gross domestic product ratio, balanced budgets for the next few years, liquidity” and the bonds are “not too expensive from a relative yield spread comparison,” Manulife’s Carr said.
British Columbia and Alberta are the only provinces with top ratings from Moody’s Investors Service and Standard & Poor’s.
Alberta said in its March budget it planned to sell $7.3 billion of debt this fiscal year, an increase of 23 per cent over the previous fiscal year and the most borrowing since 1986 in nominal terms, according to data provided by the finance ministry, as the province heads for its sixth straight deficit. The province has $17.9 billion of bonds outstanding, according to Bloomberg data.
“It could present a buying opportunity in the future,” Carr said. “But we would be a little hesitant to get too far in front of that by overweighting it much more today. That’s until we get a better sense of how much borrowing they’ll have to do.”