Canada

Wednesday, July 8, 2020 - 14:11

MNI POLICY: TEXT: Highlights of Canada Debt Strategy


By Greg Quinn

OTTAWA (MNI) - Following are highlights from the Canadian Finance Department's annual Debt Management Strategy for the fiscal 2020-21 year, published Wednesday from Ottawa:

The current environment provides a unique opportunity for the government to issue an unprecedented level of long term bonds at historically low interest rates. This will ensure Canada's debt remains affordable and is less vulnerable to increases in interest rates for future generations.

In pursuing a historic level of issuance in long-term bonds, the government will consult over the coming months with market participants to assess the market's capacity for long-term debt. Reflecting feedback from our primary dealers and other market participants, the government will make adjustments as warranted to maintain stability in Canada's fixed-income markets in these evolving circumstances, taking into account the requirements of other issuers, such as provinces, municipalities and corporations

The Government of Canada's debt program will increase in 2020-21 in order to finance the forecasted financial requirement of $469 billion. Borrowings will increase so that the government can make the necessary investments to stabilize the Canadian economy.

The government is taking a prudent approach to financing the deficit by significantly increasing long-term bonds to lock in funding at historically low interest rates. This will ensure Canada's debt remains affordable and sustainable for future generations and less vulnerable to increases in interest rates.

The aggregate principal amount to be borrowed in 2020-21 is $713 billion, which is $437 billion higher than the issuance for 2019-20.

By the end of the fiscal year, the treasury bill stock is expected to be $294 billion, about $142 billion higher than the level at the end of 2019-20.

Annual gross bond issuance is planned to be about $409 billion in 2020-21, as compared to $124 billion issued in 2019-20. This represents $285 billion more bonds this year and is much larger than the planned increase of $142 billion in treasury bills. To support higher bond issuance and help smooth the cash flow profile of upcoming maturities, three new maturity dates will be introduced, two new maturity dates by promoting 3-year bonds to their own maturity dates and one new maturity date in the 10-year sector. These changes will improve bond issuance capacity and help extend the average maturity of the debt at low interest rates.

The government plans to continue to conduct treasury bill auctions on a weekly basis for the remainder of the fiscal year. To mitigate debt rollover and respond to market demand for longer dated treasury bills, a higher proportion of treasury bill issuance in 2020-21 will be allocated to the 6- and 12-month maturities relative to 2019-20. By the end of 2020-21, the treasury bill stock is expected to increase to $294 billion, about $142 billion higher than the level at the end of 2019-20.

As 2020-21 progresses, almost 70 per cent of financial requirements is projected to be funded with bonds. The government is issuing a combined $106 billion in 10-year and 30-year bonds, compared to $17 billion in 2019-20.

--MNI Ottawa Bureau; +1 613-314-9647; email: greg.quinn@marketnews.com

[TOPICS: M$C$$$,MC$$$$,M$$CR$,M$$FI$]

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