Annex 2: 
Debt Management Strategy

Introduction

As part of Budget 2024, the federal government released the 2024-25 Debt Management Strategy, which sets out the government's objectives, strategy, and borrowing plans for its domestic debt program and the management of its official international reserves. The 2024 Fall Economic Statement provides an update on the strategy to uphold the fiscal sustainability of Canada's debt program.

Highlights from the Consultations

In September 2024, the Department of Finance and the Bank of Canada held 18 meetings to hear the views of market participants. These consultations, which are an integral part of the debt management process, specifically sought views on issues related to the design and operation of the Government of Canada's domestic debt program.

Overall, market participants viewed the bond market as functioning effectively despite ongoing volatility in global bond markets. Consistency and predictability continued to be important priorities for the bond markets. The current mix of tenors for issuance was broadly viewed as being appropriate. It was noted that elevated issuance from all orders of government was leading to some challenges for Canadian dealers with respect to balance sheet capacity.

In the Treasury bill (t-bill) sector, market participants were equally satisfied with the issuance size and mix of products. The federal government's issuance of a one-month t-bill was noted as sufficiently serving its purpose, with a review of the tenor being deemed as appropriate ahead of Budget 2025.

Outlook for Public Debt Charges

Relative to the Budget 2024 forecast, interest rates on public debt are projected to be about 10 basis points lower on average resulting in slightly decreased public debt charges in the current year. This decrease reflects Canada's recent progress towards achieving a soft landing where inflation has returned to target and growth has moderated but remained positive. This has allowed the Bank of Canada to start cutting interest rates as of June of this year. Private sector forecasters expect further rate cuts going forward, which will lead to a pick-up in growth through 2025.

Public debt charges are now forecast to reach $53.7 billion for 2024-25 (or 1.8 per cent of GDP)—$0.4 billion below the Budget 2024 forecast of $54.1 billion. 

Public debt charges to GDP have been relatively stable over the past number of years despite an environment of higher interest rates. Debt charges to GDP today are low by historical standards, which peaked at 6.5 per cent in 1990-91. The government's responsible economic plan has been successful in minimizing debt servicing costs (Chart A2.1).

Adjustments to the 2024-25 Borrowing Plan

Reflecting increased borrowing requirements for 2024-25, the government is increasing issuance across all bond sectors and treasury bills. The relative proportions of bond and bill issuance are expected to remain in line with Budget 2024. To accommodate the increased borrowing needs, benchmark ranges in the 2-year, 5-year, 10-year, and 30-year sectors have been increased. In addition, the quarterly number of 2-year auctions has been increased to five, from four, for the fourth quarter of 2024-25.

The government's borrowing plan is supported by the Canadian dollar's status as a trusted reserve currency for investors, governments, and official institutions globally. The Canadian dollar's share of official reserves has risen over the past 12 years, now ranking as the world's fifth most-held reserve currency for the last year.

Green Bond Program

On October 9, 2024, the Government of Canada successfully re-opened its second Canadian-dollar-denominated green bond to raise an additional $2 billion, following the initial $4 billion issuance in February 2024. Canada's second and third issuances were issued under the updated Green Bond Framework, which includes certain nuclear energy expenditures as eligible expenditures. Canada is the first sovereign borrower to issue a green bond including certain nuclear expenditures, demonstrating Canada's commitment to being a global leader in clean nuclear power.

Canada's second and third green bond offerings saw robust demand from environmentally and socially responsible investors who represented 66 per cent and 53 per cent of buyers, respectively. The final order book for the initial $4 billion issuance in February was over $7.4 billion, while the final order book for the $2 billion October re-opening was over $3.8 billion.

The government's intent is to proceed with two smaller green bond transactions in fiscal year 2024-25—October's re-opening and a separate offering at a later date—to meet the planned $4 billion of issuance outlined in Budget 2024.

Canada's green bond program is supporting the growth of the sustainable finance market both domestically and globally, while advancing Canada's investments in clean growth, renewable energy, climate action, and environmental protection. The government remains committed to regular green bond issuances.

Global Bond Issuance

Canada issues foreign currency bonds solely for the purpose of funding its liquid foreign currency reserves. These reserves support the Government of Canada's prudent management of the Canadian economy by promoting orderly conditions for the Canadian dollar in foreign currency markets and providing the government with a source of prudential liquidity should the need ever arise.

In April 2024, Canada issued a 5-year, US$3 billion global bond. This issuance was well received by markets, with a final order book of $13.8 billion—the second largest for a Canada Global Bond over the past 15 years. This issuance priced at a smaller credit spread than any 5-year US dollar global bond issued by Canada's peers up to that point in 2024. This tight pricing was enabled by robust demand from investors across the world, illustrating strong confidence in Canada's sound economic and fiscal fundamentals, backed by stable legal, political, and monetary institutions, and reflective of Canada's AAA credit ratings.