Canadian Credit Spreads: Rising Amid War, But Still Near the Floor

In Episode 2 of Foyston For Thought, recorded on March 23, 2026, Gabriel Lopezpineda FGP’s Head of Institutional, sits down with Ryan Domsy, FGP’s Head of Fixed Income, to discuss the recent increase in Canadian credit spreads and what it means for fixed income investors.

Are wider credit spreads a warning sign of growing market stress, or simply a return to more normal pricing after a period of unusually tight spreads? Ryan explains what credit spreads are, why they have moved wider in recent months, and why historical context matters when assessing today’s bond market environment.

The conversation also explores how FGP manages fixed income portfolios through a disciplined investment process grounded in quality, value, downside protection, and deep fundamental credit research. Gabriel and Ryan discuss how FGP evaluates corporate bonds, thinks about risk, and looks for selective opportunities when market conditions become more uncertain.

Listeners will hear how FGP approaches:

• Credit research and internal credit ratings
• Downside protection in fixed income portfolios
• Duration, yield curve, and credit positioning
• Liquidity risk and portfolio discipline
• Opportunities created by wider corporate bond spreads
• The role of active management in Canadian fixed income

This episode is designed for individual investors, financial advisors, and institutional allocators seeking perspective on credit spreads, corporate bonds, Canadian fixed income markets, and active bond management.

Disclosure:

This podcast is intended for informational purposes only and does not constitute legal, tax, security or investment advice, an opinion regarding the suitability of any investment nor a solicitation of any type. The opinions expressed are as at the date the podcast was recorded and are subject to change without notice. Foyston, Gordon & Payne is registered as a Portfolio Manager in every jurisdiction in Canada, an Exempt Market Dealer in every province in Canada, an Investment Fund Manager in Ontario, Quebec and Newfoundland & Labrador, and as an Investment Advisor in the United States. Foyston, Gordon, and Payne manages a number of pooled funds referred to as FGP Pooled Funds that are offered through a prospectus exemption to residents of Canada. The values of the FGP Pooled Funds change frequently. All investment involves risk. Unless otherwise stated, performance is on an annualized basis, in Canadian dollars and is gross of management fees. Past performance is not indicative of future performance. This podcast may contain forward-looking statements based on our views, information and assumptions as of the date of the recording. Listeners are cautioned that actual events may differ significantly. For further information on Foyston, Gordon, & Payne, please visit our website at www.foyston.com.

Transcript

Intro 0:00

From Foyston, Gordon and Payne, this is the Foyston for Thought Podcast, bringing context and perspective to the issues shaping markets and portfolios.

Gabriel Lopezpineda 0:10

Welcome to episode two of the Foyston for Thought Podcast, recorded on March 23rd, 2026. I'm Gabriel Lopez pineda, head of institutional at FGP Investments. Today we're talking about something that has started to get more attention in fixed income markets: credit spreads. Over the last several weeks, Canadian credit spreads have moved wider. That naturally raises questions. Is this a warning sign? Is this the market becoming more stressed? And what does it mean for how we manage fixed income portfolios here at FGP? To help us unpack that, I'm joined by Ryan Domsy, head of fixed income at FGP. Ryan leads our fixed income team specializing in corporate credit. Ryan, thanks for being here.

Ryan Domsy 0:50

Thanks, Gabe. Great to be here.

Gabriel Lopezpineda 0:52

Let's start right at the beginning. For anyone who doesn't spend all day looking at bond markets, what is a credit spread?

Ryan Domsy 0:59

A credit spread is the additional yield an investor gets for owning a corporate bond instead of a Government of Canada bond with a similar maturity. It's really just the market's way of pricing credit risk.

Gabriel Lopezpineda 1:09

So when people say spreads are widening, they mean investors are asking for more compensation?

Ryan Domsy 1:15

Yeah, they want a little more yield to own corporate credit. And I mean, widening spreads, they don't always signal a major problem. Sometimes they reflect a genuine problem with an issuer or sector that is experiencing challenges. Other times it reflects a broader repricing of risk for the market.

Gabriel Lopezpineda 1:30

And right now, which is it?

Ryan Domsy 1:32

Right now, we'd say it looks much more like a broad repricing than a signal of uh acute distress. Uh spreads have widened over the last several weeks, but if you look at them over a longer history, uh they still remain low relative to past periods of real market stress.

Gabriel Lopezpineda 1:48

So if someone only looked at the short-term chart, they might think this is a bigger event than it really is.

Ryan Domsy 1:54

Yeah, that's right. The short-term move really gets your attention, but longer-term context is more important in this case.

Gabriel Lopezpineda 2:00

So, what do you think has caused uh the move wider?

Ryan Domsy 2:03

Well, a mix of things. Uh the main drivers would be geopolitical and economic uncertainty, which is leading to a bit more caution in the markets. Um, when investors feel less certain about the outlook, they usually want more compensation for taking risk.

Gabriel Lopezpineda 2:16

So it's partly about sentiment?

Ryan Domsy 2:18

Yeah, definitely about sentiment, um, but also about liquidity. Um, in a less certain environment, buyers become more selective and markets uh can reprice fairly quickly, even without a major deterioration in fundamentals.

Gabriel Lopezpineda 2:30

That's helpful. So it's not necessarily that companies have suddenly become much weaker.

Ryan Domsy 2:35

Yeah, exactly. It's it's more that the market's building a bit of a cushion for the uncertainty.

Gabriel Lopezpineda 2:40

Now let's connect that to how FGP manages fixed income. When spreads widen, what does that mean for the way you look at the portfolios?

Ryan Domsy 2:48

Well, the first thing is that we don't want to overreact. FGP's fixed income process is built around discipline. We really focus on quality valuation, downside protection. And so when markets move, we take a step back and we ask, is the move justified? Um, where is value improving? And how can we maintain a cautious positioning while taking advantage of opportunities?

Gabriel Lopezpineda 3:12

So you're not treating wider spreads as automatically bad news?

Ryan Domsy 3:16

No, not at all. Wider spreads can actually create great opportunities. If interest rates rise or spreads widen, uh future return potential can improve, but only if you're very selective.

Gabriel Lopezpineda 3:27

Yeah, that selective point seems important.

Ryan Domsy 3:30

Yeah, not every bond becomes attractive just because it gets cheaper. Sometimes a wider spread is an opportunity. Sometimes it's a warning sign. The job is to be able to tell the difference.

Gabriel Lopezpineda 3:38

And that comes back to research.

Ryan Domsy 3:41

FGP puts a lot of emphasis on fundamental credit research. We really want to understand the industry, the business, the company's financial and organizational structure. But more importantly, we need to appreciate how managements strategic plan and financial discipline fit together to ensure a strong outlook. To accomplish this, we have our own proprietary internal credit framework. So we're not simply relying on outside ratings.

Gabriel Lopezpineda 4:03

And why does that matter in the current environment?

Ryan Domsy 4:06

Because when markets get more volatile, pricing can move faster than perceptions of quality. Strong credits can become more attractive. Weaker credits can also widen, but might not be fully reflecting the associated risks. Deep research helps us separate one from the other. It means that we think a lot about risk as a driving factor in our investment decisions. To us, bad risks are potential impairments or permanent loss of capital. Day-to-day price movements are unavoidable. We do our best to limit day-to-day volatility, and we believe that avoiding issuers with real credit problems is the best way to accomplish that.

Gabriel Lopezpineda 4:47

So the process is designed to not just find value, but avoid mistakes.

Ryan Domsy 4:52

Yeah, that's right. We want to capture attractive income and relative value, but we also want to be very disciplined about quality, liquidity, and position sizing to make sure that we have no big mistakes.

Gabriel Lopezpineda 5:02

Okay. I mentioned earlier that FGP specializes in credit, but our fixed income approach is broader than that, right?

Ryan Domsy 5:09

Yeah, that's a good point. Our approach focuses on credit, but interest rate impacts such as duration and yield curve positioning are still very important. When we build portfolios, we're thinking about multiple sources of value add, not just whether spreads are tight or wide.

Gabriel Lopezpineda 5:25

Can you give an example of why that matters?

Ryan Domsy 5:28

Sure. Let's say spreads are widening. We can be conservatively positioned so our portfolio experiences less widening than the market. At the same time, government yields may rise because of an expected inflationary impact from oil. In this example, a lower portfolio duration would add value both from the move in interest rates and the widening of credit spreads. Those decisions actually interact. A portfolio is more than a collection of individual bonds. It's really a combination of different risk exposures working together.

Gabriel Lopezpineda 5:59

Today's backdrop is interesting because all in yields are still relatively attractive, right?

Ryan Domsy 6:04

Yeah. With spread seeing modest widening, investors are benefiting from more spread and a higher underlying level of government bond yield than what they would have seen during the ultra-low rate period of just a few years ago.

Gabriel Lopezpineda 6:17

So fixed income investors are still being paid.

Ryan Domsy 6:19

In Canada, investors holding fixed income securities are still being paid. And that matters because higher all-in yields can provide more income, more cushion, and in some cases, a better starting point for forward returns.

Gabriel Lopezpineda 6:31

So if you had to boil all this down to one message for our listeners, what would it be?

Ryan Domsy 6:37

I'd say that credit spreads have moved wider, and that reflects a bit more cautious uh market environment. But in a longer historical context, the move actually remains fairly modest. Really, this has yet to look like a full-blown credit stress event. And for FGP, the right response is that we stay disciplined, we keep doing research, keep focusing on downside protection, and really be ready to take advantage of opportunities where the market is offering better compensation for the risk.

Gabriel Lopezpineda 7:08

So not complacent, but not alarmed either.

Ryan Domsy 7:11

Yeah, not alarmed. We're alert, selective, and disciplined.

Gabriel Lopezpineda 7:16

Well, that's a great way to put it. Ryan, thanks so much for joining me on today's podcast.

Ryan Domsy 7:21

You're welcome. It was a pleasure.

Gabriel Lopezpineda 7:22

And thank you to our listeners. We hope that the discussion has helped put recent moves and credit spreads into perspective and gave you a sense of how FGP approaches fixed income investing through a focus on quality, value, and risk management. I'm Gabriel Lopez pineda. So long for now.

Intro 7:38

This podcast is intended for informational purposes only and does not constitute legal, tax, security, or investment advice, an opinion regarding the suitability of any investment nor solicitation of any type. The opinions expressed are as of the date the podcast was recorded and are subject to change without notice. Foyston, Gordon and Payne is registered as a portfolio manager in every jurisdiction in Canada, an exempt market dealer in every province in Canada, an investment fund manager in Ontario, Quebec, and Newfoundland and Labrador, and as an investment advisor in the United States. Foyston, Gordon and Payne manages a number of pooled funds referred to as FGP pooled funds that are offered through a prospective exemption to residents of Canada. The values of the FGP pooled funds change frequently. All investment involves risk. Unless otherwise stated, performance is on an annualized basis in Canadian dollars and is gross of management fees. Past performance is not indicative of future performance. This podcast may contain forward looking statements based on reviews, information, and assumptions as of the date of the recording. Listeners are cautioned that actual events may differ significantly. For further information on Foyston, Gordon and Payne, please visit our website at www.foyston.com.