Canada’s debt issuance shifts to T-bills, long-term bonds

The Liberal government’s projected bond and bill issuance for the 2020-21 fiscal year was stable in Monday’s fall economic statement, but the make-up of the borrowing has shifted from bonds to treasury bills following a consultation with the investment industry.

The total gross issuance in Monday’s statement was unchanged from the July fiscal snapshot at $703 billion, a 155% increase from $276 billion in fiscal 2019-20. However, the government is moving $35 billion from bonds to treasury bills after meeting with dealers and investors this fall.

“Market participants indicated treasury bills are currently in high demand due to excess cash in the financial markets, both from domestic and international investors,” the Liberals’ economic statement said.

“There is ample room to increase bill issuance as evidenced by yields remaining well below the overnight rate.”

The government said it relied on treasury bills early in the fiscal year because they’re easy to issue quickly at volume. Since mid-March, the statement said, the government has shifted issuances toward long-term bonds to lock in low interest rates and manage rollover risk.

Monday’s statement projects fewer two-year, three-year and five-year bonds than in July’s fiscal update. Total bond issuance for the year was forecast at $374 billion, compared to $329 billion in treasury bills.

The statement also pointed to new forms of debt next year: potentially reopening the 50-year bond and issuing the first federal government green bond, which would finance investments in green infrastructure and other initiatives. The statement said more information would be provided in the 2021 budget.

The economic statement didn’t include issuance projections for fiscal 2021-22 but a report from BMO Economics said treasury bill stock “will remain steady” with gross bond issuance “in the $233-to-$263 billion range” — down more than $100 billion from this year.

In June, Fitch Ratings downgraded Canada’s AAA sovereign credit rating to AA+, but the other big agencies have since reaffirmed the country’s AAA standing.

A CIBC report on the economic statement noted that governments around the world are facing pressure due to elevated borrowing.

“The relative degree of deterioration and related economic response as well as the ability to restore the fiscal path in a timely fashion will be key for governments to retain their existing ratings,” the report said. “It remains to be seen how tolerant and patient the rating agencies will be recognizing that the pandemic is an extraordinary, transitory global event.”

Mark Burgess

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Mark was the managing editor of Advisor.ca from 2017 to 2024.