MNI BRIEF: Highlights of Canada Debt Strategy

Following are key passages from Canada’s debt management strategy published Tuesday alongside a fall fiscal update.

Canada Mortgage Bond Issuance

Building more affordable housing for Canadians is one of the federal government’s top priorities. Among the many initiatives the government has recently announced to unlock more rental financing is a $20 billion increase in Canada Mortgage Bond issuance. This will ensure home builders have access to the low-cost financing required to build more multi-unit projects and will support the construction of up to 30,000 more rental apartments per year.

In order to direct funding to affordable housing, Budget 2023 announced consultations on consolidating Canada Mortgage Bonds into the regular Government of Canada borrowing program and committed to return with an update in fall 2023. The government has since met with over 30 market participants, received additional written input from stakeholders, and heard from many market participants about the utility of the Canada Mortgage Bond Program, with mortgage lenders indicating a need for such a market-based instrument to hedge risks.

Reflecting the objective of supporting stable, cost-effective funding for mortgage lenders, as well as Canada’s desire to generate net revenues for initiatives such as affordable housing, the government plans to start purchasing Canada Mortgage Bonds. The government will begin purchasing up to an annual maximum of $30 billion of Canada Mortgage Bonds, starting as early as February 2024. The remaining Canada Mortgage Bonds will continue to be available for market participants.

1-Month Treasury Bills

Bi-weekly issuance of 3-, 6-, and 12-month t-bills with auction sizes ranging from $14 billion to $30 billion support a liquid and well-functioning market for Canadian federal government treasury bills, which helps investors who need access to short-term, interest-bearing securities in lieu of cash.

As noted above, respondents to the consultation for the 2024-25 Debt Management Strategy recommended the introduction of a temporary 1-month t-bill to support the transition from Bankers’ Acceptances in the Canadian money market.

The government is considering this proposal and will return to the market in advance of the Canadian Dollar Offered Rate (CDOR) transition.

Adjustments to the 2023-24 Borrowing Plan

Reflecting increased borrowing requirements, and feedback received during the Debt Management Strategy consultation this fall, the government is adjusting bond issuances across all sectors and allocating a proportionally larger share in the 30-year sector to reflect strong market demand for longer-dated bonds. As a result, the proportion of bond issuance with a maturity of 10 years or more is expected to reach 30 per cent, up slightly from 29 per cent outlined in the Budget 2023.

The adjustments in the borrowing program have been implemented to ensure predictability in the Canadian debt program and support well-functioning markets across all sectors. As a result, the benchmark sizes in the 2-year and 10-year sectors have been increased. Similarly, the number of 5-year auctions have been increased to three, while the auction size in this sector has been slightly decreased.

The government plans to issue another green bond under the updated Framework before the end of this fiscal year, subject to market conditions.