The data on the size of the Canadian equity market is easily obtained – various sources suggest that it is roughly $2 trillion*. But the size of the bond market is a bit of a mystery. An article in The Province (thanks to Preet of Where Does all my Money go? for the sources in this post) says:
New investors are often surprised to learn the size of the bond market.
The Canadian secondary debt market is approximately 30 times greater than the total Canadian equity trading market.
Initially, I thought they were referring to the total value of Canadian bonds and was puzzled because one of the interesting ideas in The Intelligent Portfolio (Read Review) is the concept of a market portfolio, in which asset classes are held in proportion to their weighting in total world market value. According to the book, data provided by Financial Engines was used to estimate that the global market portfolio has a weighting of approximately 60 percent to 70 percent in equities and about 30 percent to 40 percent in bonds. In other words, the bond market is smaller than the total stock market value. Is there any reason to believe that the Canadian market is different?
Another source suggests that there is no reason to. In Triumph of the Optimists, the authors note that the total value of the Canadian bond market at start-2000 was $539 billion (data obtained from Merrill Lynch and World Bank) compared to the total stock market capitalization of $801 billion. It is very unlikely that the proportion has changed so dramatically since then.
A bit more reading clears up the mystery. A 1996 Government paper on Financial Transactions Taxes: Pros, Cons, Design Issues and Revenue Estimates, says: “At $3.6 trillion per year, the bond market in Canada is 13 times larger than the equity market”. The title of the paper clearly suggests that “size” refers to the total value of transactions, not the total value of assets.
It is not clear why the total value of transactions is of much relevance to an investor (other than the implication that the market is very liquid). But, the total value of the bond market is clearly important because it reveals the wisdom of the market – i.e. how investors as a group have allocated their portfolio between various asset classes.
The DEX Universe Bond Index tracks a market of investment grade bonds that totalled $645 billion in 2006. I wasn’t able to find a source for the total value of the Canadian bond market but I would venture to guess that it is between $1 trillion to $2 trillion. If you do know the size of the Canadian bond market (as measured by total market value), do let us know in the comments section.
* All dollar amounts in U.S. dollars.
