(Bloomberg) -- Canada plans to increase federal bond issuanceby almost 20 percent next fiscal year to finance a growingbudget deficit and a jump in debt maturities.
The federal government plans to sell C$119 billion ($89.1billion) of bonds in fiscal 2019-2020, up from C$100 billionissued during the year ending March 31, according to budgetdocuments released Tuesday in Ottawa. The debt sales for thecurrent period were reduced by about C$15 billion compared withestimates 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. Budgetaryrevenue is forecast to jump almost 2 percent next year, comparedwith 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 toC$250 billion from C$227 billion forecast in last year's budget.The stock of total federal market debt is expected to rise toC$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 billionat the end of the coming fiscal year, compared with C$131billion this year and C$111 billion at the end of March 2018.The 36 percent increase in T-bills over the two-year periodcompares with an increase of 1.2 percent to C$583 billion ofoutstanding domestic bonds.
The cost of servicing the debt is expected to rise to C$26.2billion up from C$23.6 billion for the 2018-2019 period andC$21.9 billion in the previous year. Debt charges are expectedto rise even as bond investors aren't expecting the Bank ofCanada to raise its benchmark rate above 1.75 percent any timesoon.
Canadian assets have jumped so far this year even amid signs theeconomy is slowing. An index of Canadian bonds has returned 3.2percent already this year, almost double the return of acomparable U.S. bond gauge, according to the Bloomberg Barclaysindex.
Canada's two-year government bonds traded Monday at a yield ofabout 1.63 percent, or 82 basis points less than comparable U.S.Treasury notes. That in turn is about 2 basis points from thewidest gap between the two curves since 2007, reached earlierthis month.
The Canadian dollar, which has beaten all internationalreserve currencies but the British pound this year as oilprices recover, has received bearish calls from analysts atToronto-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 strategistsare targeting C$1.36 to C$1.37. That compares with C$1.336 as ofMonday afternoon.
©2019 Bloomberg L.P.
Essential Business Intelligence, Continuous LIVE TV, Sharp Market Insights, Practical Personal Finance Advice and Latest Stories — On NDTV Profit.
