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Canada Fall Economic Statement Takeaways [2/2]

CANADA
[continuing with issuance matters from part 1]
  • Desjardins: The “Debt Management Strategy (DMS) includes a debt issuance program of $485B, up from the estimated $387B raised in 2022–23 and a projected $414B for the current fiscal year estimated in Budget 2023 (graph 4). This is bigger than implied by the deficit alone. In addition to the impact of the deficit increase, the financial requirement is influenced by non-budgetary transactions, which include repayments to Canada Emergency Business Account (CEBA) loans. And while details are scant, financing for the now protracted period of CEBA loan repayment looks to be baked into the DMS, given how outsized it is compared to the deficit outlook.”
  • CMB plans: A hybrid approach, purchasing up to C$30bn CMBs vs the total program size of C$60bn, starting as early at Feb’24, with the remaining CMBs continuing to be available for market participants. RBC see this approach as “the best of both worlds […] Consensus was leaning toward a hybrid approach, so market reaction has been somewhat muted (spreads are a couple basis points tighter). Net-net, the new framework means that spreads should be structurally tighter than otherwise.”
  • Implications: TD: “The technical supply implications argue for belly strength, long-end weakness, and additional DV01 pressure on the market as a whole. Additionally, as CMB purchases do not start until February, there is a near-term DV01 pressure on Canada with the pace of GoC issuance increasing immediately but the partial CMB purchase offset not occurring until 2024Q1.”
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