Canada sold 50-year bonds for the first time, locking in yields lower than on benchmarks 20 years shorter, as the swelling ranks of baby boomers entering retirement boosts demand for long-dated debt.
The government doubled the size of the sale to C$1.5 billion ($1.36 billion) and won a yield 1 basis point below its 3.5 percent 2045 benchmark bond, according to details released by underwriters including BMO Capital Markets, CIBC World Markets Inc., Desjardins Securities and TD Securities Inc. on the Canadian Syndication System.
“From the standpoint of demand from long-duration players like life insurance and pension funds, the duration of a 50-year bond is not much different than a 30-year bond,” said Adrian Miller, director of fixed-income strategies at GMP Securities LLC in New York, by e-mail.
Demand from pension funds is driving purchases of longer-dated bonds to lock in higher returns while also matching liabilities and cutting exposure to equity market volatility. Former Finance Minister Jim Flaherty unveiled the ultra-long bond proposal in the 2013-14 budget as the government said it wanted to extend the maturity of its borrowings with rates at near historic lows.
The bonds, due Dec. 1, 2064, have a 2.75 percent coupon and yield 2.96 percent, one basis point less than the government benchmark note due December 2045 at the time of pricing.
“We are more likely to consider it for our long-duration portfolios that match assets versus liabilities to reduce risk in pension funds,” Patrick O’Toole, a money manager who helps oversee C$50 billion of fixed-income at CIBC Global Asset Management, said by phone from Toronto earlier today.
Canada’s bonds carry the top rating from all three major credit-rating companies.
“In the current environment, it is both advantageous and prudent for our government to lock in additional long-term funding,” Finance Minister Joe Oliver said in an e-mailed statement. “This 50-year bond will help us meet our goal of raising stable and low-cost funding to meet Canada’s financial needs and best serve taxpayers.”
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