Canada Considering Issuance of Ultra-Long Bonds - TEXT

     WASHINGTON (MNI) - The Department of Finance in Canada released the

following statement Thursday:

     The long-term financial security of Canadians is a cornerstone in the

Government of Canada's efforts to help protect the middle class and those

working hard to join it. Issuing ultra-long bonds locks in low funding costs and

reduces refinancing risks to the benefit of Canadians.

     The Government of Canada is considering issuing ultra-long bonds, subject

to favourable market conditions, through a reopening of the 2.75% December 1,

2064 ultra-long bond, using a modified auction process. The potential for

issuing ultra-long bonds and the option of issuing via auction were highlighted

in the Debt Management Strategy for 2017-18.

     The additional issuance of bonds in the ultra-long sector is in keeping

with the commitment that the Government made in Budget 2017 to reallocate

short-term issuance towards long-term bonds in order to lock in low funding

costs and reduce refinancing risk.

     Any ultra-long bond issuance would be subject to a set of issuance

criteria. These criteria include projections of cost savings based on market

expectations of interest rates over time and the costs of rolling over

short-term funding relative to the constant costs of issuing long-term debt, and

indications of sufficient demand for ultra-long bonds.

     That said, ultra-long bond issuance remains a tactical funding measure and

is not part of the regular bond program. There is no commitment to issue

ultra-long bonds and other factors may preclude the Government from issuing

these securities, even if the above criteria are met.

     To facilitate market preparations for potential ultra-long bond issuances,

the Government will consult its primary dealers regarding possible issuance

dates and auction sizes. Potential issuance dates during the current quarter

will be assessed and potential issuance dates in future quarters will be

communicated through quarterly bond schedules posted on the Bank of Canada's

website. If a decision is made to hold an ultra-long bond auction, a Call for

Tenders confirming the date and size of the auction will be posted on the Bank

of Canada's website.

     The Bank of Canada, as the Government's fiscal agent, would manage the

modified auction process. The standard terms for auctions of Government of

Canada ultra-long bonds can be found on the Bank of Canada's website

(www.bankofcanada.ca/wp-content/uploads/2016/10/terms-ulb111016.pdf). Investors

wishing to participate in an ultra-long bond auction through a government

securities distributor must obtain a regular bidder identification number or an

ultra-long bond bidder identification number prior to the auction. Quick Facts

     The fundamental objective of debt management is to raise stable and

low-cost funding to meet the needs of the Government of Canada. Achieving stable

and low-cost funding involves striking a balance between the cost and the risk

associated with the debt maturity structure under various market conditions and

different funding requirement scenarios. An associated objective of debt

management is to maintain a well-functioning market for Government of Canada

securities, which helps to keep debt costs low and stable.

[TOPICS: M$C$$$,MC$$$$,M$$FI$]