Canada looks to long-term debt to finance the soaring deficit; The 30-year yield jumps


Canada will increase issuance of long-term debt this year to fund its record budget deficit.

The federal government plans to sell $ 106 billion ($ 78 billion) of 10- and 30-year bonds in the fiscal year ending March 31, according to budget documents released Wednesday. That’s more than six times the $ 17 billion worth of such bonds sold last year.

The yield on the 30-year Canadian benchmark bond climbed to 1.087 percent at 3:17 p.m., from about 1.026 percent before the numbers were released on Tuesday, according to Bloomberg data. This compares to an average of 2.43% over the past decade.

“Given the historical level of emissions in the 10 and 30 year sectors, the government will regularly consult with market players and make appropriate adjustments, if necessary, to keep markets functioning properly,” the government said.

10- and 30-year bonds are expected to rise to 18% and 8% of gross issuance, up from 11% and 3% previously.

Asked about ultra-long debts like 50 and 100-year bonds, Morneau told reporters the government would continue to consult the markets to consider options, without commenting specifically on the matter.

In total, the government expects a gross bond issue of $ 409 billion. The total stock of bonds is expected to rise 53% to $ 915 billion.

Canada increases issuance of longer-term debt securities as it grapples with a budget deficit that could reach a record $ 343.2 billion, or 15.9% of the country’s gross domestic product, the government announced on Wednesday. This is a larger budget gap than the 11.8% recently projected by the Parliamentary Budget Officer.

Ottawa’s debt-to-GDP ratio will rise to 49.1 percent – the highest since 1999 – from 31.1 percent at the end of March.

“The government is taking a cautious approach to financing the deficit by dramatically increasing long-term bonds to lock in funding at historically low interest rates,” the government said in the document. “This will ensure that Canada’s debt remains affordable and sustainable for future generations and less vulnerable to interest rate increases.

Ontario 10-year bond yields widened about 2 basis points to 1.326%, as the world’s largest sub-sovereign bond issuer faces increased competition from the federal government to attract investors. This could prompt provinces to look to international debt markets, said Ryan Goulding, fixed income manager at Leith Wheeler Investment Counsel Ltd., which manages about $ 21 billion.

“Expanding the base of international investors without being able to market globally could be a challenge as they cannot travel to the global market” due to restrictions related to the pandemic, said Goulding.

The Federal Treasury also plans to increase its short-term debt issuance. Outstanding T-bills are expected to rise 94% to $ 294 billion, from $ 152 billion at the end of March.


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