Evidence of meeting #136 for Finance in the 42nd Parliament, 1st Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was million.
A recording is available from Parliament.
9:05 a.m.
Director, Funds Management Division, Financial Sector Policy Branch, Department of Finance
I cannot calculate the discount, but I know when I talk to investors—
9:05 a.m.
Conservative
Pierre Poilievre Conservative Carleton, ON
What's the difference between the two-year and the 10-year bond?
9:05 a.m.
Director, Funds Management Division, Financial Sector Policy Branch, Department of Finance
The difference right now?
9:05 a.m.
Director, Funds Management Division, Financial Sector Policy Branch, Department of Finance
It's about 70 basis points right now.
9:05 a.m.
Conservative
9:05 a.m.
Director, Funds Management Division, Financial Sector Policy Branch, Department of Finance
About 15 basis points, so maybe 85 or 90 basis points.
9:05 a.m.
Conservative
Pierre Poilievre Conservative Carleton, ON
Ninety basis points. Basically, by selling short-term bonds we pay a little bit less today, but we risk paying a lot more tomorrow if rates go up.
9:05 a.m.
Director, Funds Management Division, Financial Sector Policy Branch, Department of Finance
You can also see it the other way around. If I lock in today, I take the risk of potentially having benefits in the future, which is unsure compared to making sure today we're paying less interest rates. The best example would be after the financial crisis when rates went to an all-time low, and people were saying that rates could not go any lower. However, if we had used that strategy of locking in a lot more long-term debt, today we would be paying a lot more interest also on our debt, because rates have continued to decline. They've been turning down for the last 30 years.
When I look at the market today, I see 30 years at 2.3%. That's what the market is pricing for the next 30 years. It means you also anticipate that rates will be lower in the short term.
9:05 a.m.
Conservative
Pierre Poilievre Conservative Carleton, ON
You mentioned the need for liquidity in the market, so I guess what you're saying is, we don't want to sell a bunch of government bonds that would crowd out corporate bond issuances and therefore prevent our businesses from borrowing. Is that what you meant?
9:05 a.m.
Director, Funds Management Division, Financial Sector Policy Branch, Department of Finance
No, we want liquidity. On markets when they buy our bonds to be sure that they will be able to sell it back in the market and that's what we referred to as liquidity. It's really in the three- to five-year sector that you see more liquidity. Investors like to be able to buy a product and sell it back to the market. Ten- and 30-year bonds are, 30 especially are mostly buy and hold, so investors will buy it and keep it, so we don't greatly , so therefore we don't put a benchmark, a price out there for the provincial entities in order to compare our debt to.
9:10 a.m.
NDP
Peter Julian NDP New Westminster—Burnaby, BC
Thanks very much, Mr. Chair.
Thank you for being here today. I'm going to follow up with you, Mr. Moreau, on Mr. Poilievre's comments, just so I can fully understand the structure of the debt, particularly when it comes to long-term and very long-term bonds. You said that 40% of the bond offerings are long-term and very long-term. What is the percentage between the 10-year as opposed to 30- or even 50-year within that portfolio?
9:10 a.m.
Director, Funds Management Division, Financial Sector Policy Branch, Department of Finance
For example, this year we're going to be issuing in terms of 10-years, $15-billion debt, relative to about $4.5 billion in the 30-years.
March 1st, 2018 / 9:10 a.m.
Director, Funds Management Division, Financial Sector Policy Branch, Department of Finance
Exactly.
9:10 a.m.
NDP
Peter Julian NDP New Westminster—Burnaby, BC
Over all, right now in terms of our total debt structuring, it's basically 40-40-20, but of that 40% how much is long-term 10-year as opposed to very long-term, 30 or 50?
9:10 a.m.
Director, Funds Management Division, Financial Sector Policy Branch, Department of Finance
The share is fairly equal, because the 10-year will come to maturity after 10 years and the 30-year will last a lot longer, so you can issue a lot less of the 30-year ones in order to have the same proportion of debt that's been issued with a maturity of 10 years. I don't have the exact figure, but looking at the number based on what we are issuing this year, I'll assume it's roughly the same. It's slightly higher on the 10-year and maybe 60-40, but that's a number I could confirm with you if you want.
9:10 a.m.
NDP
Peter Julian NDP New Westminster—Burnaby, BC
Okay, if you could come back to the committee with that it would be helpful and the 50-year is rare or a more recent occurrence?
9:10 a.m.
Director, Funds Management Division, Financial Sector Policy Branch, Department of Finance
Yes, it's more recent. We started in 2014 with the first issuance, and we did three issuances over fiscal year 2017-18. Overall, we have a stock of 50-year bonds of about $5 billion right now in circulation.
9:10 a.m.
NDP
Peter Julian NDP New Westminster—Burnaby, BC
Okay. Thank you. That's very helpful.
In the last three years we've been seeing a greater issuing of the long-term and very long-term?
9:10 a.m.
Director, Funds Management Division, Financial Sector Policy Branch, Department of Finance
Yes, we weren't doing any ultra-long, as we call it—we were not doing any 50-year bonds before.
9:10 a.m.
NDP
Peter Julian NDP New Westminster—Burnaby, BC
Thank you. That's very helpful.
I don't have a lot of time, so I'll move on to the next issue, which is the increase in financial sector policy funding. I'd like to start with asking for the justification around that amount for financial sector policy funding, and then I would like to get an explanation around the overall program.
