Right now, success will depend on the discipline of careful security selection, the team at leading Canadian institutional investment management firm Canso Investment Counsel wrote in their latest Corporate Bond Newsletter, adding that generating alpha will depend as much on knowing what not to own as it does on identifying the credits worth owning. Click here for the full Corporate Bond Newsletter.
Kevin Warsh wins the Fed Chair cup
This past quarter had a few historic firsts. Here’s three: Canada’s men’s national soccer team advanced to the FIFA World Cup round of 16 for the first time ever. U.S. hyperscalers entered the Maple bond market. And the U.S. Federal Reserve (Fed) entered a new era in May as Kevin Warsh succeeded Jerome Powell as Chair. The team at Canso in the July 2026 Corporate Bond Newsletter celebrated the first, questioned the continuing demand for the second, and analysed the third.
“Despite the noise, Powell continued the fight against inflation. When President Trump was re-elected in 2024, the attacks on Chair Powell resurfaced and intensified. This time around, Powell remained steadfast, committed to the Fed’s independence. He has shown great fortitude through this period, as inflation declines back toward target and the U.S. economy has remained resilient amidst higher interest rates,” the team at Canso noted, adding that, “Warsh is looking to leave his own mark and has signalled a move away from the Powell-era reliance on forward guidance and the closely watched ‘dot plot’.” To the Canso team, the result is a less prescriptive, more reactive communication style that could leave markets with greater uncertainty and may cause increased volatility.
Investors anticipate rate hikes
In the United States, the newsletter warns that treasury markets remained volatile as investors assessed the future path of Fed policy and inflation. “At the front end of the curve, investor expectations have shifted from pricing in rate cuts to anticipating rate hikes, which has kept short-term yields elevated,” the authors wrote, adding that further out on the yield curve, concerns over mounting fiscal deficits and elevated government borrowing drove investors to demand greater compensation for holding longer-dated debt. This has pushed the 30-year U.S. Treasury yield above 5 per cent for the first time since 2007.
Meanwhile, in Canada, yields were range-bound as the Bank of Canada navigated a delicate balance between moderating inflation and softer economic growth. “The Canadian yield curve dropped in the second quarter while its U.S. counterpart rose,” the team at Canso wrote, noting that despite the offsetting moves, bond markets on both sides of the border ended the period with positive performance.
Canadian corporate bond market sets record pace of new issuance
The team at Canso noted in the newsletter that investment grade spreads remain at historically expensive levels, trading near the tightest range of the current credit cycle and well below long-term averages.
The market is assigning a low probability to a meaningful deterioration in corporate fundamentals, leaving investors with limited spread cushion relative to history. While this does not imply an imminent reversal, the potential for further spread compression appears limited.
The Canso team
To the Canso team, the story of the year for the Canadian corporate bond market has been the record pace of new issuance. Investor appetite for high-quality corporate credit has been persistent as companies looking to borrow have been met by investors happy to lend.
Bell Canada and TransCanada Pipelines continued to tap the market at paper-thin risk premiums, while Bird Construction issued a five-year senior unsecured note that was more than eight times oversubscribed. Molson Coors International also re-entered the Canadian market for the first time in a decade, issuing a seven-year note at a credit spread of 90 basis points (bps).
Maple bonds have stolen the show
Maple bonds are Canadian-dollar-denominated bonds issued by non-Canadian borrowers. The team at Canso has been tracking these issuances, and noted that Maple issuance doubled in 2025, from $8 billion to $16 billion. In the first six months of 2026, total Maple bond issuance surpassed $35 billion, with U.S. “hyperscalers” entering the Canadian bond market in size for the first time in May.
AA rated Alphabet Inc. led the way with a record-breaking $8.5 billion deal, which was the largest single-day corporate bond new issue in Canadian history. Five weeks later, Amazon.com Inc. broke the record with a mammoth $14 billion deal.
The Canso team questioned if there has been too much issuance for the market to absorb. “At times, demand has appeared insatiable. But this may be starting to hit a limit. Amazon followed their Canadian issuance in June with a US$25 billion offering in July. The deal was not met with the same enthusiasm from investors as previous issuances and the orderbook showed signs of weakness. We may be starting to see signs of oversupply across the hyperscaler complex as the Canadian-dollar Amazon long-bond has now widened 17 bps since new issue,” they wrote.
Spreads on lower-rated issuers are widening
The Corporate Bond Newsletter in July kept an eye on high yield bonds, which extended their strong performance during the second quarter. However, the Canso team warned that beneath the headline performance a more nuanced picture emerged across rating bands.
“While BB and B rated credits tightened by as much as 17 bps, spreads on CCC and lower-rated issuers widened by approximately 60 bps,” they wrote. The divergence suggests to them that investors are becoming increasingly selective, distinguishing between issuers with stronger credit fundamentals and resilient access to capital markets and those facing elevated leverage and refinancing risk.
“Recent activity among lower-rated issuers reinforces why investors have become increasingly selective at the weaker end of the credit spectrum,” the Canso team wrote, presenting the example of the Colisée Group to highlight the growing reliance on liability management exercises as highly leveraged issuers seek to address balance sheet pressures without a traditional default process.
What’s a bond investor to do?
For investors, the message is increasingly clear. “With spreads near historical tights, future returns are likely to be driven more by careful issuer selection than broad market strength. The market is no longer rewarding every issuer equally, and this dispersion is creating both downside risk and upside opportunity,” the authors of the Canso Corporate Bond Newsletter wrote. They added that as tight valuations leave little room for error, robust fundamental credit analysis is as critical as ever to preserving capital, and maximising risk-adjusted returns.
To them, markets are increasingly characterized by late-cycle dynamics. “Credit spreads remain near historically tight levels, valuations across many asset classes leave little room for disappointment, and investors are being compensated less for broad market exposure than they have been in the past. This does not mean the cycle is ending tomorrow, but it does suggest that the margin for error is narrowing,” they warned.
For the team at Canso, in this environment, success will depend on the discipline of careful security selection, and generating alpha will depend as much on knowing what not to own as it does on identifying the credits worth owning.
Disclaimer: This story was created by Canadian Family Offices’ commercial content division on behalf of Canso Investment Counsel Ltd., which is a member and content provider of this publication.