March 22, 2017 / 10:08 PM / 5 months ago

RPT-Canadian debt issuance rises with deficit

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By Fergal Smith

OTTAWA, March 22 (Reuters) - Canada's bond issuance will rise to C$142 billion in 2017-18 as the budget deficit climbs to C$28.5 billion, according to the government's Debt Management Strategy, with the focus maintained on the issuance of short- and medium-term bonds.

The stock of domestic bonds is expected to rise to C$575 billion for the fiscal year that starts in April from an estimated C$537 billion in 2016-2017, while the stock of T-bills is seen edging up to C$131 billion from an estimated C$130 billion.

Issuance had jumped 45 percent to an estimated C$135 billion in 2016-17 as the Liberal government under Prime Minister Justin Trudeau ran a deeper deficit in its first budget in an effort to support Canada's economy, which had been impacted by an oil-price shock.

Oil is oneof Canada's major exports.

The government forecasts a downward trajectory for federal debt as a percentage of gross domestic product in future years, but it has dropped an explicit target for debt-to-GDP and has no forecast for when the budget will return to balance.

"Its commitment continues to weaken" on reducing the deficit, said Craig Wright, chief economist at RBC.

The number of 30-year nominal bond auctions will increase from two to three, but there is no indication that issuance of these longer-dated bonds will rise overall even as the government plans for C$81.2 billion of long-term infrastructure spending.

Increased focus on the issuance of 2-, 3- and 5-year maturities considers the liquidity needs of the market and satisfies the government's objectives of achieving stable, low-cost funding and promoting a well-functioning market, the Debt Management Strategy said.

Issuance in the 3-year sector was re-introduced in 2016-17.

The number of 10-year bond auctions will remain unchanged at five and there will be quarterly auctions of 30-year real return bonds.

Two buyback operations on a switch basis are planned for bonds that were originally issued with terms to maturity of 30 years.

The sale of Canada Savings Bonds, a retail debt product created in 1946, will be discontinued in 2017. (Reporting by Fergal Smith in Ottawa; editing by Dan Burns)

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