Feds Sell Billions of First Ever 50 Year Bonds

When Finance Minister Joe Oliver announced on April 28 that the Government of Canada would issue $1.5 billion in first-of-a-kind 50-year bonds, maturing on December 1, 2064 with a yield of 2.96 per cent, he hoped for strong demand and the placement of at least $750 million.

The result was much better, as reported by the National Post.

“In all, the final book size was $2.6 billion with 46 investors showing an interest. Of the $1.5 billion that was allocated, 80% were placed with Canadian investors, 15% with buyers south of the border and the rest in Europe, Middle East and Asia. Of the buyers, 52% were fund managers, 42% were pension funds and insurance companies and 6% were classified as private banks or other.”

In its announcement, the Department of Finance emphasized that Canada continues to receive the highest possible credit ratings, with a stable outlook, from all the major credit rating agencies, and commented on the government’s commitment to prudence in locking in long-term funding for its debt. “This 50-year bond will help us meet our goal of raising stable and low-cost funding to meet Canada’s financial needs and best serve taxpayers.” said Mr. Oliver.

This move should help with pension risk management, according to a Bloomberg news report by Theophilos Argitis and Cecile Gutscher, who reported that “. . .Canada is seeking to lock in interest rates near historical lows by capitalizing on demand from pension funds as the baby boom generation ages into retirement. As an improving economy and expectations of higher interest rates push yields up, Canada’s retirement managers are buying longer-dated bonds with yields on short-term securities so low, while also seeking to match liabilities.”