From early 2004 to mid-2007, spreads on Canadian corporate investment-grade and high-yield bonds were fairly stable and narrow relative to historical norms, as were those in most other industrialized countries. (This can be seen in Chart 1.) But these spreads began to widen last summer as the crisis in the subprime-mortgage market started to take hold.
We will need to account for international monetary and fiscal responses, financial market price changes (e.g., the exchange rate and yield curve), and domestic fiscal responses and intentions, to inform our response. We also remain in regular dialogue with the Treasury to assess how monetary and fiscal policy can be best coordinated.