Demise of ultra-long bond signals strong budget conditions: NBF

Late on Thursday, the Bank of Canada quietly announced the scrapping of the federal government’s ultra-long bond program. For National Bank Financial (NBF), the announcement likely reflects the budgetary windfalls for governments.

In a notice to the market on June 9, the central bank said the government’s issuance of ultra-long bonds was being canceled immediately, including an offering that was planned for June 16.

In a report on the decision, NBF said that the move indicates that governments are enjoying strong revenues, which is reducing their financing needs.

“Judging from a record low unemployment rate and double-digit nominal GDP growth, economic and fiscal momentum has carried over to 2022-23. That suggests budgetary targets set down in 2022 budgets could be beat, in some cases handily,” it said.

“True, rate hikes are already slowing the housing market, creating economic risks for Canada. At least for now, however, governments are basking in bonus revenue,” it said.

Lower financing needs will also lead to further reductions in bond supply, the report suggested.

“So take this for what it is, a fiscally inspired tweak to the GoC bond program, but not the only change in funding that will be needed and not necessarily grounds for a permanent re-pricing on the curve or on a cross-market basis,” it concluded.

James Langton

James is a senior reporter for Advisor.ca and its sister publication, Investment Executive. He has been reporting on regulation, securities law, industry news and more since 1994.