Canada Lifts Bond Borrowing Ahead of Election
Canada Lifts Bond Borrowing Ahead of Election
(Bloomberg) -- Canada plans to increase federal bond issuance
by almost 20 percent next fiscal year to finance a growing
budget deficit and a jump in debt maturities.
The federal government plans to sell C$119 billion ($89.1
billion) of bonds in fiscal 2019-2020, up from C$100 billion
issued during the year ending March 31, according to budget
documents released Tuesday in Ottawa. The debt sales for the
current period were reduced by about C$15 billion compared with
estimates included in the previous budget.
The budget projects a 2019-20 budget deficit of C$19.8 billion,
up from C$14.9 billion in the current fiscal year. Budgetary
revenue is forecast to jump almost 2 percent next year, compared
with a 1.8 percent increase in program expenses.
Next year’s total refinancing needs, which include bonds,
Treasury bills and debt in foreign currencies, will rise to
C$250 billion from C$227 billion forecast in last year’s budget.
The stock of total federal market debt is expected to rise to
C$754 billion from C$723 billion.
The treasury plans to increase its reliance on short term debt,
a measure that could help to keep borrowing costs in check.
Outstanding Treasury bills are expected to rise to C$151 billion
at the end of the coming fiscal year, compared with C$131
billion this year and C$111 billion at the end of March 2018.
The 36 percent increase in T-bills over the two-year period
compares with an increase of 1.2 percent to C$583 billion of
outstanding domestic bonds.
The cost of servicing the debt is expected to rise to C$26.2
billion up from C$23.6 billion for the 2018-2019 period and
C$21.9 billion in the previous year. Debt charges are expected
to rise even as bond investors aren’t expecting the Bank of
Canada to raise its benchmark rate above 1.75 percent any time
soon.
Canadian assets have jumped so far this year even amid signs the
economy is slowing. An index of Canadian bonds has returned 3.2
percent already this year, almost double the return of a
comparable U.S. bond gauge, according to the Bloomberg Barclays
index.
Canada’s two-year government bonds traded Monday at a yield of
about 1.63 percent, or 82 basis points less than comparable U.S.
Treasury notes. That in turn is about 2 basis points from the
widest gap between the two curves since 2007, reached earlier
this month.
The Canadian dollar, which has beaten all international reserve currencies but the British pound this year as oil prices recover, has received bearish calls from analysts at Toronto-Dominion Bank, which downgraded its forecast on Friday, seeing the loonie within a range of C$1.35 to C$1.40 per U.S. dollar for much of this year. Citigroup’s technical strategists are targeting C$1.36 to C$1.37. That compares with C$1.336 as of Monday afternoon.
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