April 28, 2014 / 9:14 PM / 5 years ago

Canada launches ultra-long bond with 50-year maturity

TORONTO (Reuters) - Canada issued its first ultra-long term bond that will mature in 50 years, the Department of Finance said on Monday, a rare move that will let the government capitalize on the current low interest rate environment.

The government of Canada issued C$1.5 billion worth of the bonds with a yield of 2.96 percent. That was similar to where the yield on the benchmark 30-year bond was trading on Monday. The bonds will mature on December 1, 2064.

The ultra-long debt could satisfy demand from investors, such as pension funds, looking to hedge their long-term liabilities, as well as those with long investment horizons, said Hosen Marjaee, senior managing director of Canadian fixed income at Manulife Asset Management in Toronto.

“It’s an area of the curve that is a very long-term investment,” said Marjaee. “It does come very rarely.”

The bond will also help the government lock in borrowing costs that are near historic lows. Canada is one of the few leading industrialized nations with an undisputed AAA rating and its bonds are in high demand.

“The goal is probably to give them some kind of a longer-term predictable interest rate,” said Colin Cieszynski, senior market analyst at CMC Markets Canada in Toronto.

“If we enter into an interest rate environment where interest rates go up, then this could turn out to be a big win for the government.”

Sovereign bonds with a 50-year duration are not as common as 30-year bonds, although several Canadian provinces already issue ultra-long bonds. The United States does not issue a 50-year bond, but China and Britain do.

“It is a sign that obviously, if you’re issuing a 50-year bond and people buy it, then certainly there’s a level of confidence that Canada is a reasonably well-managed, stable country that people are hoping will be in decent financial shape 50 years from now,” Cieszynski said.

“Which is a far cry from if you tried to issue this in the 1990s,” he added.

Canada’s credit rating was cut in the early 1990s, when the country grappled with large budget deficits.

Additional reporting by Allison Martell; Editing by Peter Galloway and Andre Grenon

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