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Canada Seen Selling First 50-Year Bond This Year, RBC Says

Canada will probably issue its first “ultra-long” bond with a 50-year maturity during the second half of this year as it seeks to lock in rates near historic lows, according to Royal Bank of Canada.

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.

Auction Schedule

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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