Canada Yields Rise on Plan to Sell Record Long-Term Debt

(Bloomberg) --

Canada's government outlined plans to issue a record amount of long-term debt this year, even as financing requirements drop.

The government plans to issue C$121 billion ($96 billion) of bonds maturing in 10 years or later, up from C$107 billion in fiscal year that ended March 31, according to the budget documents released Monday. Both were record amounts.

That's even as total bond issuance is set to decline by nearly C$88 billion to C$286 billion, reflecting the nation's narrowing deficit and recovering economy.

Yields on longer-term debt rose as investors began to factor in the rush of new supply. The 30-year benchmark yield briefly rose above 2.07%, up from 2.02% immediately before the details were announced. The 10-year yield rose to its highest in two weeks.

The shift toward longer-term bonds is an effort by Prime Minister Justin Trudeau's government to lock in rates at current lows, amid mounting debt. It also comes as the Bank of Canada, which has sopped up much of the incremental supply of government bonds over the past year, is expected to pare back the pace of its purchases.

“The government will closely monitor financial markets and, subject to favorable market conditions, will seek opportunities to issue more long-term debt,” according to a budget document that sees the federal deficit more than halving to C$155 billion this fiscal year.

More than 40% of its bond issuance will be in maturities of 10 years or more, up from 29% last year and 15% pre-pandemic.

That includes a reopening of a 50-year issue, according to the document. Over the next three years, the strategy will increase the average term to maturity to about 8 years, the longest in four decades, versus a historical average of 5.9 years.

Including C$226 billion in planned sales of short-term bills, aggregate borrowing by the government will hit C$523 billion. The amount of domestic bonds outstanding is set to reach C$1.06 trillion by end of the current fiscal year, up from C$597 billion two years earlier, the document said.

Market debt outstanding is set to reach C$1.31 trillion by the end of March 2022.

As part its debt management strategy, the government also said it plans to raise C$4 billion by issuing ultra-long bonds. It also is targeting a C$5 billion green bond issuance, its first. Officials will also undertake consultations on the potential issuance of social bonds to finance projects such as investments in child care.

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