They don't need to issue this because the fiscal accounts are getting better.
There is a bank in Canada.
The photo was taken byJustin Tang.
The ultra-long bond issue of the Government of Canada has been canceled because it believes its borrowing needs are decreasing while its balance sheet is improving.
Some fixed-income analysts were surprised by the cancellation of the June 16 auction of the bond, which is 50 years old.
According to Andy Nasr, chief investment officer at Scotia Wealth Management, consultations late last year to gauge demand for the product showed there were some concerns. He said the wait-and-see approach in suspending the bond now and possibly bringing it back later makes sense because of the economic uncertainty.
He said that it was a good idea to hold off a bit and wait to see what happens.
When interest rates are close to historic lows, governments try to lock in financing. Since the global financial crisis in 2008, the overnight rate has been less than 2%.
The governments have been talking about bonds of 30 years or more. In January of last year, Germany and France both issued two billion euro bonds with 100 and 50 year maturities, respectively.
Mexico offered a 50-year bond in 2021, and Argentina sold a 100 year bond with a 7.9-per-cent yield, according to the Wall Street Journal.
Nasr said it made sense to lock in financing for a long period of time because interest rates were so low.
The economy is in a different inflation regime and central banks are hiking rates, raising more uncertainty about what the normalized costs of capital are.
Nasr said that all those concerns and worries affect how people perceive how they want to position their fixed-income portfolios.
The ultra-long bonds the government is suspending represent a small portion of the total bond market according to Michael Heydt.
The fiscal accounts are improving quickly so they don't need to issue this. It wasn't a reflection of what's happening in the bond market, but a reflection of the lack of need for funding.
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