Little room for federal government to issue long-term debt unless central bank steps in – Business News

Little room for federal debt

The Canadian Press – | History: 347805

Recently released documents show the Liberals learned earlier this year that the government’s attempt to keep interest rates on the federal debt low could run into trouble unless the Bank of Canada steps in.

The low rates have been a key economic rationale why the government can afford the high spending and large deficits needed to put a financial floor under businesses and workers affected by COVID-19.

Although longer-term bonds carry higher interest rates than short-term options, they lock in debt at rates that are still very low.

Documents provided to Finance Minister Chrystia Freeland ahead of the April budget indicate that the Department of Finance and the Bank of Canada were urged to avoid issuing new, very long-term bonds due to limited appetite investors.

Documents released to The Canadian Press under the Freedom of Information Act indicate that such bonds could affect yields unless the central bank removes debt through its known buyout program. under the name of quantitative easing.

The government has offered 50-year bonds once this year and the sale appears to have gone well, although the Bank of Canada has slowed the pace of its bond purchases.

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