2017.05.1203:27:00UTC+00Moody’s Downgrades Canadian Lenders, Bank Bonds and Loonie Drop

Bank bonds and the Canadian dollar both fell after Moody's Investors Service cut the rating for the nation's banks for the first time in over years, indicating that surging consumer debt combined with runaway housing prices have left lenders susceptible to losses.

The ratings company trimmed the long-term debt and deposit ratings one level for Toronto-Dominion Bank, Bank of Montreal, Bank of Nova Scotia, Canadian Imperial Bank of Commerce, National Bank of Canada and the Royal Bank of Canada.

The decision left TD with a long-term debt rating of Aa2, which is the third highest level. Moody's also lowered the other five to A1, the fifth-highest. The outlook is negative for all six lenders.

The yield on Royal Bank of Canada's U.S. dollar bond due January 2026 gained nine basis point to 3.92 percent while rate on Toronto-Dominion Bank's note due in September 2031 was up by five basis points, according to Bloomberg. An index of shares of Canadian banks dropped 0.9 percent.

The Canadian dollar fell 0.3 percent to 1.3694 per dollar, pulling back from a drop of nearly 0.8 percent earlier in the day. The loonie has been 1.9 percent lower in 2017, making it the worst performer among Group-of-10 peers.