Investors Ask Canada to Reverse Inflation-Linked Bond Freeze – Yahoo Finance

(Bloomberg) — The Canadian Bond Buyers’ Affiliation, which represents managers of over C$1.2 trillion ($900 billion) of belongings, is asking Canada’s finance division to reverse its choice to stop the issuance of inflation-linked bonds.
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The federal government determined to cease the issuance of recent real-return bonds after consulting market individuals, citing weak demand, Finance Minister Chrystia Freeland stated in a finances replace launched early this month. The choice is coming on the “worst attainable timing for buyers” as a consequence of historic ranges of inflation and after the session “didn’t establish the basic sources of demand” for such securities, the trade group stated in a Nov. 14 memorandum.
“The CBIA calls on the Division of Finance to rethink this hasty choice and take time to judge this advanced state of affairs,” the affiliation stated. “Consideration shouldn’t solely be given to the reinstatement of the unique program but in addition to taking steps to enhance the market construction.”
Insurance coverage corporations and pension plans are pure buyers of real-return bonds as a result of nature of their liabilities as a few of their contractual guarantees have continuously been tied to the buyer value index, the CBIA stated. Whereas a few of the bigger establishments might discover options, smaller buyers providing merchandise resembling listed annuities might face “larger volatility and threat for participant members,” it stated.
Learn extra: Canada Surprises Merchants by Ending Actual-Return Bond Program
“The choice to cancel the Actual-Return Bonds (RRB) program was taken as a result of demand for this sector is simply too low to justify sustaining it. This choice was not associated to the present inflation atmosphere,” stated Caroline Feggans, a spokesperson for the Division of Finance, in an emailed reply to questions. “RRBs have suffered from low-demand lengthy earlier than the present inflation atmosphere. The federal government undertook intensive consultations in 2019, which confirmed poor demand for real-return bonds. This was strengthened in latest debt administration technique consultations.”
The marketplace for Canadian real-return bonds is small — simply C$48.6 billion excellent, based on information compiled by Bloomberg. The longest-dated difficulty matures in 2054.
The true-return market is used to worth pension plan liabilities, so with out accessible long-dated inflation-linked bonds akin to the liabilities, valuation strategies could be put into query, the CBIA memo stated.
“Eliminating RRBs not solely reduces the variety of funding by excluding sure market individuals,” the memo stated, it “additionally alters the notion of all market individuals that the Authorities of Canada just isn’t assured that it may possibly take care of the inflation downside.”
(Provides remark from Division of Finance spokesperson)
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Originally posted 2022-11-29 13:17:46.

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