UPDATE 1-Canada plans U.S. dollar global bond issue to pad FX reserves

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TORONTO, Jan 16 (Reuters) - Canada is planning to issue a global bond denominated in U.S. dollars later this week, subject to market conditions, the country’s Department of Finance said on Wednesday.

Issuing a global bond provides funds to supplement and diversify Canada’s foreign exchange reserves, the government said.

“Diversification of funding sources is key,” said Hosen Marjaee, a senior portfolio manager at Manulife Asset Management. “They like to keep that channel open by having issues outstanding and every once in a while going to the market.”

One of Canada’s global bonds, with $3 billion outstanding, is due to mature on Feb. 27, according to Refinitiv data.

If the upcoming issue is left unhedged it could be more expensive for Canada to issue in the U.S. market than to issue in Canadian dollars. Yields on U.S. Treasuries trade more than 60 basis points higher than yields on Canadian government bonds.

“There is a bit of a cost involved but at the same time the U.S. dollar is a little bit cheaper now than it was a couple of months ago,” Marjaee said.

The Canadian dollar has rallied nearly 3 percent against the greenback since the beginning of 2019.

Canada is one of the few countries with an undisputed triple A credit rating, so its bonds tend to be greatly sought after by international investors. (Reporting by Fergal Smith; Editing by Chizu Nomiyama and Jeffrey Benkoe)