Canada’s Credit Status Reflected In Strength of Dominion Bond Issue

A. W. BLUE December 15 1930

Canada’s Credit Status Reflected In Strength of Dominion Bond Issue

A. W. BLUE December 15 1930

Canada’s Credit Status Reflected In Strength of Dominion Bond Issue



DURING the past autumn an issue of $100,000,000 Dominion of Canada 4 per cent bonds, maturing in 1960, was sold in the

New York market at a price of 95¼ to net the investor a return of 4.28 per cent per annum to maturity. Within an hour or two after the subscription books were opened the issue was heavily oversubscribed, and was eventually absorbed into the investment portfolios of banks, insurance and trust companies, and to a limited extent into the investment accounts of private investors.

The instant success of this financing was gratifying to all Canadians, as it was an unqualified tribute to the sound financial status of the Dominion and her high credit rating in world financial markets. Especially was this reception significant in view of the fact that the bonds were placed on the market at a time of acute unsettlement in certain foreign government loans, especially those of South American republics; and when, too, the bond market as a whole was wavering in sympathy with drastic deflation of common stock values on the New York Stock Exchange.

Not only were these bonds sold at virtually the highest quotation for Canadian Government bonds in the past three or four years, but the Canadian list as a whole held steadfast throughout the intermediate cycle of acute market depression. In fact this special piece of financing was arranged on more advantageous terms than have been accorded any other country in recent years, with the exception of the United States itself.

Contrast With Other Countries

CONTRAST this record of stability with the performance of South American issues, as outlined in New York financial comment:

“Recent heavy liquidation in South American bond issues has adversely affected the market positions of all external obligations of countries on that continent, regardless of whether the particular nation is having political difficulties. Large blocks of South American obligations have been thrown almost indiscriminately on the market from day to day, with the result that all prices have declined sharply, and losses in a single session of $50 to $100 a bond have become rather common. Declines greater than the latter amount have occurred in securities which do not appear on the bond tape every day. Many issues have recently sold forty points under their 1930 highs. Without doubt a large part of the selling has been for holders who fear the word ‘revolution.’ ’’

But it is not surprising that Canadian issues have displayed a striking immunity to these disturbing conditions. Bonds of this Dominion have for years enjoyed high

favor among experienced investors. The security of all Dominion loans rests upon the full faith and credit of the people of Canada. While this is

a sufficient guarantee of the character of these bonds, there is the more specific fact of Canada’s phenomenal economic expansion, her heritage of natural resources, minerals, timber, water powers, and of first-class agricultural land.

It is recalled that the Canadian Government has been pursuing a policy latterly of retiring maturing loans with funds from the treasury, and this recent financing marked the Government’s first transaction in the New York market in over four years. Neither absence nor time had dulled the prestige of Canada’s credit, or the high investment rating of her securities.

Substantial Reductions Made

T ET us examine briefly Canada’s financial record in the troublous period that has followed the war, when so many nations have been well-nigh overwhelmed by the crushing weight of their war obligations

The war, of course, added tremendously to Canada’s national debt, as the following figures indicate. The net national debt of the country stood at the moderate figure of $335,996,850 in 1914, the bulk of it representing revenue producing services. By 1923 the national debt stood at the all time peak of $2,453,776,860, the great proportion of it having been incurred for non-revenue producing purposes. Reduced to a per capita basis, the 1914 debt of $43.68 compared with the 1923 figure of $271.79.

Today we are not so much concerned with the figures as we are with the progress made in reducing them, and in this direction our record is both unique and satisfying. Since the first of April, 1925, substantial reductions have been made in the outstanding public debt, by the redemption of maturing loans, in whole or in part, out of surplus revenues. During this period the public revenues have exceeded public expenditures by amounts ranging annually from $27,000,000 to $71,000,000. This gratifying record has been accomplished in the face of a steady lightening of the tax burden on the public, and is accordingly a reflection of the recuperative powers and economic vigor of the country at large. These retirements over the past five years, together with the stock and bonds acquired for sinking fund purposes, make a total of $257,000,000 of debt retired out of surplus revenues.

The annual interest charges on outstanding bonds, debentures, and treasury bills, as at the close of the last fiscal period, March 31 last, amounted to $112,900,000, representing a reduction of $20,500,000 in annual interest charges as compared with the commencement of the

Hundreds of thousands of dollars are lost annually in Canada through careless investment. Fraudulent and worthless securities are being constantly poured on to the market to trap the unwary. A general observance of this simple maxim will assist in the reduction and elimination of this economic waste— “BEFORE YOU INVEST—INVESTIGATE”

1922-23 fiscal period. The reduction hs been brought about by savings of $5,10(. 000 through the refunding of loans t lower interest rates, and $15,400,000 I/ the actual retirement of maturing loar. The most recent offering of Governmet bonds was in part for refunding purpose.

During the fiscal period ended Man 31 last, two loans fell due and were retir*) out of surplus revenues, available aftr the expenditures of the Dominion híj been met. The first loan was the ten-yer 514 per cent issue of 1919 for $60,000,00 and fell due in New York in August, 192, On February 1 last, the four-year 4 ]4 Pr cent $20,000,000 loan issued in 19)8 matured and was paid off out of surplu, The retirement of these two issues iv suited in an annual saving of interet charges amounting to $4,200,000.

At the close of the fiscal year 1930, tie unmatured funded debt stood at $2,25(¡, 837,336, and of this amount $56,090,0(1) was held in sinking funds, leaving $2,194746,563 outstanding in the hands of tie public.

The following table indicates the treri of the public debt during the past tvo decades:

Year Total Debt Assets Total Net Debt Per Net Capita Debt 1911. 474,941,487 134,899,435 340,042,052 47.18 1912. 508,338,592 168,419,131 339,919,461 1913. 483,232,555 168,930,930 314,301,625 46.15 1914. 544,391,369 208,394,519 335,996,850 41.76 1915. 700,473,814 251,097,731 449,376,083 43.68 1916. 936,987,802 321,831,631 615,156,171 57.16 1917. 1,382,003,268 502,816,970 879,186,298 76.55 1918. 1,863,335,899 671.451.836 1,191,884,063 107.48 1919. 2,676,635,735 1,102,104,692 1,574,531,033 143.11 1920. 3,041,529,587 792,660,963 2,248,868,624 185.60 1921. 2,902,482,117 561,603,135 2,340,878,984 260.54 1922. 2,902,347,137 480,211,335 2,422,135,802 266.36 1923. 2,888,827,237 435,050,368 2,453,776,869 271.89 1924. 2,819,610,470 401,827,195 2,417,783,275 271.79 1925. 2,818,066,523 400.628.837 2,417,437,686 264.21 1926. 2,768,779,184 379,048,085 2,389,731,099 260.82 1927. 2,726,298,717 378.464,347 2,347,834,370 254.51 1928. 2,677,137,243 380,287,010 2,296,850,233 246.64 1929. 2,647,033,973 421,529,268 2,225,504,705 237.82 1930. 2,194,746,563 227.17 A comparison of national receipts ari expenditures since 1918 follows: Total Total Total Total Year Receipts Expenditure Year Receipts Expenditures 1918...... 260,778,953 178,284,313 1925.. 351,515,392 318,891,901 1919.... .. 312,946,747 232,731,283 1926.. 382,893,009 320,660,479 1920 ...... 349,746,335 303,843,930 1927. 400.452.480 319,548,173 1921 ...... 436,292,185 361,118,145 1928.. 429,642,577 336,167,961 1922 ...... 382,271,571 347,560,691 1929.. 460.151.481 350,952,924 1923 ...... 403,094,210 332,293,732 1930.. 447,322,000 1924 ...... 406,582,840 324,813,190 402,815,000

Lightening the Tax Burden

'THE most gratifying feature of th x above record is Canada’s thoroughl; demonstrated ability to balance he budgets, and leave something over afte the expenses of administering this hug national organization have been met

This has been accomplished to th accompaniment of a progressive lighten ing of the tax burden on the public notably in sales and income taxes. Th heavy additional expenditures impose* by the way, and the loans floated for th purpose of enabling Canada to finance he war activities, created the necessity o tapping new sources of revenue, and fo this purpose special war taxes wer

evolved, the first revenue from thi:

special taxation being recorded in 1915 when the total was $98,057. By 1924 th* revenue derived from special war taxe reached a peak of $182,036,261, but ha¡ steadily declined in the subsequent

interval, as one by one adjustments in the levies were made, the total for the Iasi fiscal period standing at $133,801,000 Customs and excise taxes are the othei principal sources of revenue.

Main items of expenditure are interesl on public debt, which last year reached a total of $121,750,000; pensions, $40,500,000, another item directly attributable to the war; public works, railways and canals subsidies to provinces and postoffice.

The growth of Canadian industry has rendered Canada’s satisfactory record possible. Industry is here used in its widest sense to include agriculture, and other basic activities as well as manufacture and all other forms of productive enterprise. Canadian industry has been

advancing steadily in its productive capacity. The latest comprehensive figures of Canada’s production cover the year 1928, and these indicate a greater output in that year than for any year on record, showing a gain of 6.5 per cent over 1927, and 14 per cent over 1920, which year held third place in the ten-year period. The net value of commodities produced in Canada in 1928 was $4,190,-

509.000 and this compares with $3,936,-

186.000 in 1927 and $3,640,356,000 in 1926.

An estimate of the national wealth of

the country must of course be roughly approximate, but the “inventory” method of computation affords a fair indication of our status. The Government estimates the tangible wealth of the country, exclusive of undeveloped natural resources, at roughly $27,000,000,000 as against $22,000,000,000 in 1921 The largest item contributing to make up our national wealth is agriculture, with urban real property, railways and the pulpwood industry, with capital invested therein, following in order. On the basis of real property, therefore, Canada’s national mortgage appears to be well secured, although of course, in the case of national

obligations the good faith and the credit of a nation are the primary security.

The true status of a country is often more accurately envisaged by an independent observer, and in this connection it is of interest to record the verdict of a writer in Barron’s Weekly, who discusses the growing American interest in Canada:

“We have every reason to be well satisfied with our stake in Canada. Our past experience with Canadian bonds is reflected in the present ready marketability of Canadian issues here at low interest rates. As far as our own direct investments in Canadian industries are concerned, we have only to examine recently published statistics by the Canadian Manufacturers’ Association in order to appreciate Canada’s astounding development. In less than sixty years the value of Canadian field crops has increased tenfold; the value of manufactured products fifteen times; mineral production thirty times and the value of exports of wood, wood products and paper, twelve times in thirty-seven years. Our investments there are certainly favored by more than proximity and similarity of taste, customs, language an,d currency.”

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