By Tom Bradley
In presentations over the last year, I’ve often referred to Ontario as the Italy of Canada. In other words, its finances are abysmal. At a time when the province’s key economic drivers, housing and autos, are booming, the fiscal deficits are large and show signs of becoming chronic.
So we were highly amused when Connor, Clark and Lunn Investment Management, the manager of the Income Fund, compared Ontario bonds to Italian government bonds during our quarterly review. Here are the two charts they used:
As Canadians, we’d all like to see Ontario come closer to living within its means. But as investors, we have to look beyond the headlines. The uncertainty around Ontario’s budget and a potential downgrade are good things. They give us a chance to pick up an extra 1% of yield (above Government of Canada bonds) and potentially benefit when/if the government shows some resolve. In CC&L’s view, the extra yield more than offsets the additional risk.1
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