Ontario Chastened, Quebec Rewarded in First Bonds Since Budgets

(Bloomberg) -- Ontario got a somber reminder of what bond investors think about its fiscal policy: they prefer Quebec's.

Canada's most populous provinces offered up new 10-year bonds this week in the wake of delivering dramatically different budgets, with Quebec coming out on top by selling its securities at a spread 8 basis points tighter to the federal benchmark than Ontario.

Even though the provinces are rated the same at Moody's Investors Service and Fitch Ratings, investors have traditionally demanded a slightly higher yield when lending to Quebec due to its higher debt load relative to the size of its economy. But now Quebec is paying less than Ontario to borrow.

The French-speaking province sold C$500 million ($391 million) of new 2.75 percent bonds due in September 2028 at 65.5 basis points above similar-maturity federal government bonds on Tuesday. Ontario then sold C$750 million of new 2.9 percent June 2028 bonds at 73.5 basis points over the federal benchmark on Wednesday.

In its 2018-19 budget last week, Quebec outlined a plan to balance its budget for five straight years, allowing the province to pay down debt and lower taxes for small businesses and homebuyers. Its ratio of net debt to gross domestic product is forecast to drop to 41 percent by 2021-22 from about 46 percent now.

Ontario, on the other hand, plans to run budget deficits for the next six years, breaking a pledge to keep its books balanced as it boosts spending. That will send its ratio of net debt to gross domestic product to about 39 percent in 2021-22 from 37 percent this fiscal year.

To contact the reporter on this story: Maciej Onoszko in Toronto at monoszko@bloomberg.net.

To contact the editors responsible for this story: Jacqueline Thorpe at jthorpe23@bloomberg.net, Christopher DeReza at cdereza1@bloomberg.net, Steven Frank

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