What are Maple Bonds?

Maple bonds are Canadian-dollar denominated bonds issued by foreign borrowers into the Canadian market. The majority of issuers are European, mainly from Germany, the United Kingdom, Norway, the Netherlands and Ireland. In general, maple bonds are rated “A” or better, and usually trade at a premium yield versus similarly rated domestic issues.

Issuers fall into several categories:

• sovereign guaranteed, such as KfW and Network Rail
• sovereign agencies, such as Bank Nederlandse Gemeenten
• supranational, such as the Inter-American Development Bank
• financial, such as Bank of America and The Goldman Sachs Group, Inc.
• corporate, such as Total S.A.

Maple bonds are issued under a foreign prospectus or medium-term note program, and sold into Canada with additional documentation that meets provincial disclosure requirements and specifies Canadian settlement rules.

Because no Canadian prospectus is filed, most maple bonds may be sold only to accredited investors, such as high net worth individuals, registered advisers and dealers, or institutions, who are deemed not to need the protection of a prospectus. However, anyone may buy maple bonds issued or guaranteed by a government (known as sovereign guaranteed) or by certain supranational agencies, which are exempt from prospectus requirements.

The maple bond market is supported by a number of factors. First, there is a lack of fixed income supply in Canada to meet the surplus funds available for investment. Second, the limited size and breadth of the credit market in Canada forces investors to look at other markets in order to obtain both diversification and yield. And just as investors look to diversify their risk, global issuers also seek diversification in their funding activities.

However, it was the repeal of the Foreign Property Rule in 2005 that provided the greatest push to the maple bond market. Since then, Canadian investors have been able to hold unlimited foreign content in their registered accounts. This flexibility allowed pension funds to broaden their holdings of foreign bonds.

The secondary market for maple bonds is now considered fairly mature and increasing in liquidity.