Debt markets diverged as governments hit record issuance while banks retired pandemic-era bonds
Canadian borrowing via debt securities slowed considerably in the second quarter of 2025, down to a net issue of $36.7 billion and marking the softest quarterly activity since Q3 2023.
While governments continued to push new debt, financial corporations pulled back, driving the overall decline, according to the latest data from Statistics Canada.
As the quarter closed the total book-value stock of Canadian debt securities had contracted by $18.7 billion, settling at $6.2 trillion, partly due to the strengthening of the Canadian dollar against the greenback which devalued roughly one-fifth of the holdings denominated in US currency.
Government debt issuances soared to a record high of $71.3 billion, the most aggressive quarterly issuance since Q2 2021. Of that, the federal government accounted for $38.1 billion, while provinces and territories contributed $32.6 billion, with most of these issuances aimed at domestic buyers and structured as bonds.
Meanwhile, Canadian financial institutions entered a phase of repayment, collectively retiring $51.2 billion in debt securities, led by chartered banks retiring $52.3 billion, mostly in bonds that were initially issued during the heightened borrowing demands of the COVID-19 era and carrying maturities of two to five years.
Non-financial businesses, especially those in the transportation and warehousing sectors, continued issuing modest levels of debt, adding $16.6 billion in new debt securities.
Canadian equity markets saw net retirements total $9.5 billion in Q2 with financial firms leading in pullbacks with $9.7 billion worth of equity removed, while non-financial companies, notably in mining, marginally offset this by issuing $0.2 billion worth. This was the first time since Q1 2021 that non-financial equity issuance exceeded retirements.
Despite the pullbacks, the market value of all listed Canadian equities climbed by $390.5 billion, reaching $5.3 trillion. This surge was driven by a 7.8% rise in the S&P/TSX Composite Index throughout the quarter.
On the international front, Canadian holdings of foreign securities rose by $122.3 billion, reaching $4.2 trillion.
This increase primarily reflected gains in foreign equities, particularly US stocks, though tempered slightly by the appreciating Canadian dollar.
Foreign shares accounted for $3.2 trillion of holdings, while foreign debt securities comprised $1 trillion. At the end of Q2, US instruments made up 71.6% of foreign holdings.
