The Finance Ministry said it “may issue bonds with a maturity of 50 years in 2014-15 subject to favorable market conditions” after consulting with market participants, according to this year’s budget. The best time to issue the debt would be during a period when there’s a gap in 30-year auctions in the fiscal second quarter that ends in September, said Ian Pollick, senior fixed-income strategist at RBC Capital Markets.
“Given you have that long duration gap between July and September that would be the best time, because there’s no other long-end bond crowding out the appeal of a new issue,” Pollick said by phone from Toronto. RBC was the fourth-most active underwriter for debt of Canadian provinces and government agencies in 2013, according to data compiled by Bloomberg.
Finance Minister Jim Flaherty unveiled the ultra-long proposal in the 2013-14 budget as the government planned to extend its maturities in a bid to lock in low interest rates. Prospective investors including Swiss Re AG have urged the government to follow through with the plan, which would give them long-term assets that pay yields higher than index averages and enable them to offset pension liabilities.
Yields on Canadian 30-year bonds have risen to 3.06 percent from 2.5 percent in March 2013, when the finance ministry disclosed the ultra-long bond.
The Bank of Canada will hold three 30-year nominal bond auctions the first, third and fourth quarters of 2014–15, according to the budget. Issuance of 10- and 30-year bonds will be in line with 2013-14 levels. The government said it wants to lengthen its average debt maturity to 8 years in 2018 from about 7 1/2 years.
“In all likelihood they should have issued last year,” Pollick said. “It makes sense from a taxpayer perspective and is consistent with their objective of extending their average term to maturity.”
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