Apr 7, 2022
Canada to bolster bill sales as Bank of Canada action looms
, Bloomberg News
Net spending is limited in this budget: Former PBO on the federal budget
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Canada plans to increase sales of short-term debt this fiscal year, even as government finances improve and overall debt issuance declines for the second year in a row.
The federal government plans to increase the stock of treasury bills by 14 per cent to $213 billion (US$169 billion), according the documents released as part of Finance Minister Chrystia Freeland’s budget on Thursday.
Sales of two-year debt are expected to rise 10 per cent from last year’s levels, while the government plans to reduce issuance of 10-year and 30-year bonds.
The government is increasing its reliance on shorter-term debt even as the government yield curve has been flattening. Bond traders are focused on the Bank of Canada’s future plan for reducing its holdings of government debt. The central bank accumulated hundreds billions on its balance sheet as part of emergency programs during the COVID-19 pandemic.
The government’s decision to borrow short lowers the risk of the market being flooded with longer-dated securities, said Angelo Manolatos, a rates strategist at Bloomberg Intelligence.
“The issuance shift towards the front end of the curve means less interest-rate risk the market needs to absorb as the Bank of Canada exits its reinvestment phase,” said Manolatos. “If issuance was skewed toward the long end of the market, there would be more interest-rate risk for investors to buy -- risking an increase in bond yields.”
Overall, gross debt issuance from the Canadian government will decline about 4 per cent, to $425 billion, in the fiscal year ending March 31, 2023.
The budget is based on assumptions that three-month bills will yield an average of 0.8 per cent this year and 1.7 per cent in 2023, compared to 0.86 per cent currently.
The budget’s economic assumptions see inflation, which is running at 5.7 per cent, moderating to 2.4 per cent next year as rates rise. The government sees oil prices easing to US$74 a barrel next year.
After raising $5 billion with its inaugural issue of green bonds last month, Canada plans to raise another $5 billion this fiscal year from selling that type of debt.
