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Reuters
27-05-2025
- Business
- Reuters
Investors brace for record Canadian government debt issuance as budget delayed
TORONTO, May 27 (Reuters) - Canada's government debt issuance is expected to surpass a pandemic-era record high this fiscal year, which could raise borrowing costs and add to calls for the ruling Liberal Party to be more transparent on its spending plans. Prime Minister Mark Carney has said his government, which retained power in last month's general election, will present a budget in the fall. The budget is typically tabled by April, the first month of the fiscal year. With debt issuance running high, some analysts and investors worry the budget could reveal a surprise increase in government spending for the current fiscal year, resulting in increased bond issuance that needs to be absorbed by the market in a shorter space of time. Canada sends about 75% of its exports to the United States so its fiscal outlook is particularly uncertain as the U.S. wages a global trade war. Still, analysts can estimate Canada's borrowing needs for 2025-26 by taking the government's forecasted financial requirement in a December economic update, adjusting it for increased spending in the Liberal Party's campaign platform and adding maturing debt. The estimate comes to C$628 billion ($457.26 billion), according to Reuters calculations. That would exceed 2020-21 debt issuance of C$593 billion, and mean an even greater increase in the net supply of debt after much of the pandemic-era debt was purchased by the Bank of Canada to support the economy. Bond maturities are historically high as some of the additional debt load accumulated during the pandemic comes due, while deficit spending remains elevated and the government began last year purchasing mortgage-related bonds to help lower the cost of housing. Investors tend to demand higher returns for the risk of providing larger loans. "We do think that this will have an impact on Government of Canada bond yields," said Andrew Kelvin, head of Canadian and global rates strategy at TD Securities. He forecast a steeper yield curve in Canada, where long-term borrowing costs rise faster than short-term rates, and debt issuance of C$645 billion this fiscal year. His supply estimate anticipates lower economic growth than used in the Liberal platform. "Whatever is going to be in the budget, the more time the market has to process it, the easier it is for the market to digest that supply," Kelvin said. The Canadian 10-year yield has already climbed more than 50 basis points from its trough in April to 3.31%, tracking a move in U.S. yields as a worsening fiscal outlook for the United States raises concerns about demand for U.S. government debt. The 10-year yield remains low by historic standards, but is trading 63 basis points above the 2-year rate, which is nearly the largest gap since November 2021. While fiscal policy is a concern for long-term investors, the Bank of Canada's interest rate-cutting campaign has helped anchor short-term rates. Investors have said that Carney's experience as a central banker is reassuring, but the long wait for a budget is unwelcome. "It raises questions about transparency and contributes to greater economic and fiscal uncertainty," said Joshua Grundleger, director, sovereigns at Fitch Ratings. "It would be helpful for markets to have a clear sense of which aspects of the party platform will be implemented and what the ultimate impact will be on deficits, debt and the taxpayer," Grundleger said. Canada's debt is popular with foreign investors but that demand cannot be taken for granted, analysts said. The Canadian dollar accounts for only a small share of foreign exchange reserves held by central banks. "Markets need greater clarity sooner on debt issuance plans," Derek Holt, head of capital markets economics at Scotiabank, said in a note. "If you're going to do (the) fall, make it September." ($1 = 1.3734 Canadian dollars)
Canada Standard
23-05-2025
- Business
- Canada Standard
Mixed inflation signals complicate Bank of Canada's outlook
OTTAWA, Canada: Canada's inflation picture became more complicated in April, with headline inflation easing but core measures ticking higher—posing a challenge for the Bank of Canada ahead of its next policy decision. Statistics Canada reported this week that annual inflation slowed to 1.7 percent in May, down from 2.3 percent in March, primarily due to falling energy prices and the removal of a federal carbon tax. The reading was slightly above analyst expectations of 1.6 percent and the Bank of Canada's forecast of 1.5 percent. But underlying inflation told a different story. The CPI median, which strips out extreme price movements, rose to 3.2 percent, while the CPI trim measure increased to 3.1 percent—both at 13-month highs. The central bank closely monitors these core metrics as they offer a clearer view of inflation trends unaffected by volatile categories like fuel. "Signs of renewed weakening in the economy on the one hand... but stronger core inflation on the other makes for a tough decision for the Bank of Canada," said Andrew Grantham, senior economist at CIBC Capital Markets. Markets responded quickly: the odds of a rate cut at the bank's June 4 meeting fell from 65 percent to 40 percent, according to swaps market data. Energy prices were the main drag on the headline rate, with gasoline down 18.1 percent and natural gas prices dropping 14.1 percent compared to a year ago. But grocery prices climbed 3.8 percent, up from 3.2 percent in March, and travel tour prices rose 6.7 percent year-on-year. On a month-to-month basis, overall inflation dipped by 0.1 percent, defying forecasts for a 0.2 percent decline. Despite mounting pressure from volatile global trade conditions, analysts like TD Securities' Andrew Kelvin say the central bank may remain cautious. "The data doesn't scream for a rate cut," Kelvin said, "but trade-related uncertainty could tilt the balance." The Canadian dollar firmed slightly to C$1.3930 against the U.S. dollar following the report. With just one key data point—Q1 GDP due May 30—remaining before the Bank of Canada's following announcement, the central bank faces a tricky path as it weighs conflicting signals from the economy.
Reuters
15-04-2025
- Business
- Reuters
Canadian dollar pulls back from 5-month high as inflation cools
Summary Canadian dollar falls 0.7% against the greenback Annual inflation rate slows to 2.3% Home sales and house prices decline 2-year yield eases four basis points TORONTO, April 15 (Reuters) - The Canadian dollar weakened against its U.S. counterpart on Tuesday as the greenback posted broad-based gains and cooler-than-expected inflation data supported bets for additional interest rate cuts by the Bank of Canada this year. The loonie was trading 0.7% lower at 1.3975 per U.S. dollar, or 71.56 U.S. cents, extending its pullback from a five-month high at 1.3827 during Monday's session. Canada's annual inflation rate slowed in March to 2.3% from 2.6% in February, largely due to lower gasoline and travel prices. Analysts had expected inflation to remain at 2.6%. "Even if it is not enough to drive a rate cut in April, it does speak to inflation momentum that's fading," said Andrew Kelvin, head of Canadian and global rates strategy at TD Securities. "Once we start to see the negative data really pile up due to trade disruptions, I do think the Bank of Canada will begin to reduce interest rates again." Investors saw a 57% chance that the BoC pauses its interest rate-cutting campaign on Wednesday but expected the central bank to resume easing in June and were pricing in two additional cuts in total by the end of 2025. The BoC's benchmark interest rate is currently at 2.75%. Separate data showed that Canadian home sales and house prices declined in March as U.S. tarrifs and countermeasures threatened to upend the domestic economy. Canada will allow some relief to domestically based automakers and manufacturers in specific sectors from counter-tariffs provided they meet certain conditions, the Finance Ministry said. The U.S. dollar (.DXY), opens new tab clawed back some recent declines against a basket of major currencies and the price of oil , one of Canada's major exports, was trading 0.4% lower at $61.30 a barrel. Canadian bond yields fell across much of a steeper curve. The two-year was down four basis points at 2.539%, after earlier touching its lowest level since Wednesday at 2.532%.
