09:25 AM EDT, 06/17/2025 (MT Newswires) -- This year's provincial budgets in Canada are highlighting increasing deficits, higher capital spending and, by extension, lofty borrowing requirements, said CIBC.

However, with many budgets released too early in the year to incorporate United States tariff uncertainty into their gross domestic product projections, there is concern among investors that borrowing could exceed even these lofty expectations, wrote the bank in a note to clients.

The good news, though, is that the provinces that released budgets earliest are also the ones that should be least impacted by U.S. trade tensions, stated CIBC. In addition, with those uncertainties fading somewhat, consensus forecasts for GDP growth have started to edge up again.

Having said that, if trade uncertainties take a turn for the worst again, or another shock emerges, provincial finances could deteriorate more than the downside scenarios

suggested within this year's budgets, pointed out the bank.

As was the case last year, impending bond maturities owing to the shorter-dated issuance that occurred early in the pandemic needs to be refinanced. Indeed, aggregate maturities are up from FY24/25 totalling around $78 billion, of which 35% was originally issued as a five-year bond. That compares to around $60 billion of maturities last year, with 24% of that originally being a five-year bond.

Currently, this fiscal year's projected borrowing is about $150 billion after incorporating some pre-funding that select provinces typically engage in, in line with last year.

However, overall net supply is estimated to be lower as a result of those higher maturities, added CIBC. When including the potential shortcomings from the protectionist trade rhetoric emitting from the U.S., overall borrowing is tilted to the upside and could even match/surpass the total issuance observed during the pandemic year of 2020/21.

All of this potential supply would pressure domestic spreads

if it were all completed in Canadian markets, which leads the bank to believe that this upcoming year will experience a higher proportion of international issuance once again.

Typically, when borrowing needs are higher, provinces look to expand their investor base by tapping international markets. Indeed, CIBC has already seen eight non-domestic bonds issued since late-March, totaling C$16.6 billion.

That represents around 37% of all completed provincial issuance so far in this new fiscal year, according to the bank. Coupled with the lack of deal activity from other domestic issuers, namely corporates, has helped support domestic provincial spreads which are trading at the tighter-end of the range.