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For the first time since 2014, Canada’s Department of Finance is holding an ultra-long bond issue.

On August 22, Reuters reported the Bank of Canada was set “to auction $750 million of ultra long-dated bonds due in 2064 on Aug. 29.”

Desjardins says in its August 29 report that this move marks a turnaround in Finance’s thinking. Why? Recently, says the report, “information had filtered suggesting that high officials at the Department of Finance were opposed to the issue of ultra-long bonds, favouring the shorter-term debt, the cost of which was more advantageous and was continuing to decline.”

The decision to go ahead with issuing ultra-longs, the report adds, “indicates a desire to hedge somewhat against rollover risk.”

Now’s the time to issue these bonds, says Desjardins, which finds, “The current window, characterized by a very flat yield curve, is conducive to the issuance of ultra-long bonds.”

But don’t expect an influx, it adds. “The federal government will likely want to keep the weighting of these bonds at a relatively low level. Issuing aggressively in the long-term would protect against interest rate risk at renewal but there would still be a cost to pay for this guarantee, which is higher interest costs in the near-term horizon.” Read more.

Originally published on Advisor.ca
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