By Canadian Press

Little room for feds to issue long-term debt unless central bank steps in: documents

Oct 6, 2021 | 10:54 AM

OTTAWA — Newly released documents show the Liberals were told earlier this year that the government’s bid to lock in low interest rates on federal debt could run into problems unless the Bank of Canada stepped in.

The low rates have been a key economic rationale for why the government can afford the elevated spending and deep deficits needed to put a financial floor under businesses and workers impacted by COVID-19.

Although longer term bonds carry higher rates of interest than short-term options, they lock in debt at what are still rock-bottom rates.

Documents provided to Finance Minister Chrystia Freeland ahead of the April budget say the Finance Department and Bank of Canada were told to avoid issuing any new, super-long-term bonds because of limited appetite from investors. 

The documents released to The Canadian Press under the access-to-information law say any such bonds could affect yields unless the central bank sopped up debt through its purchasing program, known as quantitative easing.

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The government did offer up 50-year bonds once this year and the sale appears to have gone well, even as the Bank of Canada has eased the pace of its bond purchases. 

This report by The Canadian Press was first published Oct. 6, 2021.

The Canadian Press