It might be surprising to some bond investors that Quebec municipalities cannot run deficits, and generally issue debt under only two scenarios:

  1. To refinance existing debt
  2. To fund infrastructure projects to improve services to its population.

In late 2015, the Liberal Party was elected with a plan to nearly double federal infrastructure investments over the following decade. “Every dollar we spend on public infrastructure grows our economy, creates jobs, and strengthens our cities and towns,” said Justin Trudeau during his 2015 election campaign. This commitment was particularly important for the Quebec municipal bond market as government money was only partially covering these new infrastructure projects and municipalities had to issue debt to cover the balance of the costs. Consequently, Quebec municipal bond total issuance has risen each year since 2017.


There’s an old saying in the bond world: “supply creates demand.” This is exactly what happened in 2019 for Quebec municipal bonds – total issuance reached an all-time high of $3.7 billion while investors hungry for that debt pushed spreads over provincial bonds down significantly. Thanks to all the issuance, liquidity was higher this year than what we’ve seen in recent years, allowing for tactical allocations in bond portfolios. We were particularly active with Quebec non-rated municipal bonds, strategically increasing our holdings in Q1 at wider spreads and cashing them in Q3 while reinvesting all of our maturities. We’re not here to talk politics, but the recent Liberal Party win could be a tailwind for Quebec municipal bonds going forward.


Jean-Guy Mérette

Vice President and Portfolio Manager
Active and Strategic Fixed Income Team