Canada to stop issuing three-year bonds, may issue more ultra-longs

Mon Mar 30, 2015 5:27pm EDT
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OTTAWA (Reuters) - Canada will stop issuing three-year bonds to concentrate more on the two- and five-year sectors, and it may also issue more ultra-long bonds in the coming fiscal year given strong demand and low rates, the Department of Finance said on Monday.

The department laid out its plans in its Debt Management Strategy for 2015-16, the fiscal year that starts April 1. Normally the document is published as part of the annual federal budget, but the government has delayed the budget until next month, after the start of the new fiscal year.

The government reintroduced the three-year bond in 2009 when it went heavily into deficit to counter the recession, but it is close to balancing the budget now.

"In this regard, market participants have expressed a preference for the cessation of issuance in the three-year sector in favor of increased issuance in other sectors, specifically two- and five-year bonds," the finance department said.

"Ceasing issuance in the three-year sector will not change the number and pattern of maturity dates but will allow for the building of larger bond benchmarks."

The department said the benchmark-bond target range size would be C$10 billion ($7.9 billion) to C$14 billion for the two-, five- and 10-year sectors, and C$10 billion to C$16 billion for the 30-year and Real Return Bond sectors.

On the long end of the spectrum, Canada launched its first 50-year bond last April to lock in low rates. It issued a total of C$3.5 billion during 2014, and the debt strategy document said on Monday it may issue more ultra-long bonds in 2015-16.

"Any decision to reopen the ultra-long bond would be subject to favorable market conditions and would be communicated by the government to market participants during the course of the fiscal year," it said.

The department intends to keep the stock of treasury bills above C$120 billion throughout the year, it added.   Continued...