August 17, 2017 – Ottawa, Ontario – Department of Finance Canada
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.
- 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.