WEBVTT

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Recently,

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much attention has been paid
to the increased leverage
and corresponding erosion

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of credit quality of corporate America.

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The BBB percentage of
the U.S. investment-grade
corporate market increased to

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50.1% at year-end 2018,

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marking the first time BBBs comprised
the majority of the investment-grade

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universe. In Canada,

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BBBs comprise a record 42.8% of the
Canadian investment-grade corporate

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bond market.

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Generalizations about the growth of
the U.S. BBB market and the threat

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downgrades pose to lower-rated segments
ignore subcategories within the BBB

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segment.

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The U.S. BBB-rated category is 5.8
times larger than the BB segment

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of the high-yield market.
More relevant in our view,

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the BBB- category is only 1.4
times larger than the BB category.

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In our opinion,

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the BBB overhang is not as ominous a
threat to the high-yield market as the

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headlines would suggest.

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What separates Canada from the U.S.
bond market is the absence of a

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well-developed high-yield market.

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The Canadian BBB segment is 24 times
the size of the entire Canadian high

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yield market,

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and the BBB- category is 4.5
times the size of the BB portion

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of the Canadian High
Yield Index. In Canada,

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the downgrade of a large BBB credit
could have a significant impact on the

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Canadian high-yield market. For
more information on this topic,

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please read the Canso Corporate Bond
newsletter available at cansofunds.com.