MNI (OTTAWA) - Following are highlights from the Canadian government's debt management strategy from the fall fiscal update presented Monday. Earlier today Chrystia Freeland resigned as finance minister.
Highlights from the Consultations
In September 2024, the Department of Finance and the Bank of Canada held 18 meetings to hear the views of market participants... Overall, market participants viewed the bond market as functioning effectively despite ongoing volatility in global bond markets. Consistency and predictability continued to be important priorities for the bond markets. The current mix of tenors for issuance was broadly viewed as being appropriate. It was noted that elevated issuance from all orders of government was leading to some challenges for Canadian dealers with respect to balance sheet capacity. In the Treasury bill (t-bill) sector, market participants were equally satisfied with the issuance size and mix of products. The federal government’s issuance of a one-month t-bill was noted as sufficiently serving its purpose, with a review of the tenor being deemed as appropriate ahead of Budget 2025.
Outlook for Public Debt Charges
Relative to the Budget 2024 forecast, interest rates on public debt are projected to be about 10 basis points lower on average resulting in slightly decreased public debt charges in the current year. This decrease reflects Canada’s recent progress towards achieving a soft landing where inflation has returned to target and growth has moderated but remained positive. This has allowed the Bank of Canada to start cutting interest rates as of June of this year. Private sector forecasters expect further rate cuts going forward, which will lead to a pick-up in growth through 2025. Debt Management Strategy 223 Public debt charges are now forecast to reach $53.7 billion for 2024-25 (or 1.8 per cent of GDP)—$0.4 billion below the Budget 2024 forecast of $54.1 billion. Public debt charges to GDP have been relatively stable over the past number of years despite an environment of higher interest rates. Debt charges to GDP today are low by historical standards, which peaked at 6.5 per cent in 1990-91. The government’s responsible economic plan has been successful in minimizing debt servicing costs.
Adjustments to the 2024-25 Borrowing Plan
Reflecting increased borrowing requirements for 2024-25, the government is increasing issuance across all bond sectors and treasury bills. The relative proportions of bond and bill issuance are expected to remain in line with Budget 2024. To accommodate the increased borrowing needs, benchmark ranges in the 2-year, 5-year, 10-year, and 30-year sectors have been increased. In addition, the quarterly number of 2-year auctions has been increased to five, from four, for the fourth quarter of 2024-25.
Green Bond Program
The government’s intent is to proceed with two smaller green bond transactions in fiscal year 2024-25—October’s re-opening and a separate offering at a later date—to meet the planned $4 billion of issuance outlined in Budget 2024... The government remains committed to regular green bond issuances.