Debt Management Report 2023-2024

Foreword by the Minister of Finance and National Revenue

I am pleased to table before Parliament the Debt Management Report for the fiscal year 2023-24.

Canada's economy has shown remarkable resilience in the face of global uncertainty and economic turmoil. With strong long-term fundamentals, we are well positioned to navigate today's challenges and a complex geopolitical landscape. Canada enters this period from a position of fiscal strength, one that allows us to invest in growth, competitiveness, and the services Canadians rely on.

Our new government is committed to fiscal discipline: spending less so Canadians can invest more, and making the strategic investments that will drive prosperity for the long term. Delivering on these priorities is undergirded by stable, low-cost funding that the Government of Canada can raise through prudent fiscal management that focuses federal spending on core government priorities, and reduces operational spending.

Every year, the federal government provides a report to Parliament and Canadians that details the government's domestic debt program. This report reflects the main activities of the government's borrowing program, as set out in the 2023-24 Debt Management Strategy, and is guided by the key principles of transparency, regularity, prudence, and liquidity. As in the past, the government has consulted dealers and investors as part of the process for developing the debt management strategy.

Highlights of this period include purchases under the $30 billion Canada Mortgage Bond program to raise revenues for affordable housing initiatives, and the issuance of Canada's second green bond.

This report confirms that Canada's debt management operations continue to support the effective execution of the debt management program, contributing to the objectives of raising stable and low-cost funding, while maintaining a liquid, well-functioning market for Government of Canada securities. This allows us to pursue strategic investments aimed at supporting productivity and raising living standards for all Canadians.

The Honourable François-Philippe Champagne, P.C., M.P.
Minister of Finance and National Revenue
Ottawa, 2025

Purpose of This Publication

This edition of the Debt Management Report provides a detailed account of the Government of Canada's borrowing and debt management activities for the fiscal year ending March 31, 2024.

As required under Part IV (Public Debt) of the Financial Administration Act (the "FAA"), this publication provides transparency and accountability regarding these activities. It reports on actual borrowing and uses of funds compared to those forecast in the Debt Management Strategy for 2023-24, tabled on March 28, 2023, in Budget 2023. It also discusses the environment in which the debt was managed, the composition of the debt, changes in the debt during the year, strategic policy initiatives and performance outcomes.

Other Information

The Public Accounts of Canada is tabled annually in Parliament and is available on the Public Services and Procurement Canada website. The Debt Management Strategy and the Report on the Management of Canada's Official International Reserves, which are also tabled annually in Parliament, are available on the Department of Finance Canada website. Additionally, monthly updates on cash balances and foreign exchange assets are available through the Monthly OIR updates, and the Fiscal Monitor, which is also available on the Department of Finance Canada website. Under the Borrowing Authority Act (the "BAA"), the Minister of Finance (the "Minister") is required to table a report to Parliament every three years on amounts borrowed by the Minister on behalf of His Majesty in right of Canada, by way of issue and sale of Canada Mortgage Bonds guaranteed by the Canada Mortgage and Housing Corporation except if they are purchased by the Minister and are not resold other than for the purpose of providing a source of temporary liquidity, and by agent Crown corporations. The most recent report was tabled in Parliament on May 2, 2024, and is available on the Department of Finance Canada website.

Executive Summary

Introduction

This publication reports on two major activities: (i) the management of federal market debt (the portion of the debt that is borrowed in financial markets); and (ii) the investment of cash balances in liquid assets for operational purposes and contingency planning.

The government's market debt, including marketable bonds, treasury bills, retail debt and foreign currency debt, stood at $1,371.9 billion at the end of fiscal year 2023-24 (see Chart 1).. In addition to market and other types of unmatured debt, other liabilities brought the total liabilities of the Government of Canada to $2,057.8 billion at that time. When financial and non-financial assets^{Footnote 1} are subtracted from total liabilities, the federal debt or accumulated deficit of the Government of Canada was $1,236.2 billion as at March 31, 2024 (see Chart 1).

Domestic funding is conducted through the issuance of marketable securities, which consist of nominal bonds, green bonds and treasury bills, including cash management bills. These securities are generally sold through competitive auctions (occasionally through a syndication process at the government's discretion, such as for green bonds) to government securities distributors, a group of banks and investment dealers in the Canadian market. These government securities distributors then resell these securities to their wholesale and retail clients in the secondary market. Government of Canada securities auctions continue to be well subscribed, leading to a low cost of funding for the government.

Government of Canada marketable securities are widely held and can be found in institutional investment portfolios, insurance companies and pension funds, central banks (including the Bank of Canada), as well as a variety of other investment vehicles. Overall, about 72 per cent of Government of Canada market debt was held by Canadian investors, including the Bank of Canada, as well as insurance companies and pension funds, and financial institutions and provincial and municipal governments. Participation of international investors in Government of Canada securities markets has grown over the last number of years and benefits Canadians, as they serve to increase competition, increase the diversity of the government's investor base, and ultimately reduce borrowing costs for Canadian taxpayers. Beyond maintaining low debt service ratios for the government, low and stable government borrowing costs translate into stable mortgage rates and certainty for businesses as they borrow to invest in job-creating expansion. Furthermore, provinces, pension funds and corporates use Government of Canada securities as a pricing reference for debt issuances. Low and stable costs for the Government of Canada translate into favourable borrowing conditions for all Canadians.

Cross-currency swaps and issuance of foreign currency debt are used exclusively to fund foreign reserve assets held in the Exchange Fund Account (see the section entitled "Foreign Currency Debt").

Highlights for 2023-24

The Debt Management Report consists of three parts covering the main aspects of the Government of Canada's debt program. Part I: 2023-24 Debt Management Context focuses on the state of the accumulated deficit (i.e., federal debt), the year's financial requirements and the sources of borrowings used to raise funds, the federal government's credit ratings, and the authorities required to borrow. Part II: Report on Objectives, Strategic Direction and Principles reports on debt management objectives to implement the government's strategic direction to raise stable and low-cost funding to meet the financial needs of the Government of Canada, and to maintain a well-functioning market for Government of Canada securities. Part III: Report on the 2023-24 Debt Program reports on the operational aspects of the market debt program.

The 2023-24 debt management operations continue to support the effective execution of the debt management program. The main highlights are as follows:

Bond Program

In 2023-24, changes were made to the bond program in line with the debt management strategy, and in response to the evolving fiscal outlook. In Budget 2023, the government announced that it would cease issuance in the 3-year sector to support liquidity in the debt market and consolidate issuance within the core issuance sectors. The last 3-year auction took place in the first quarter of 2023-24.

In the Fall Economic Statement 2023, reflecting increased borrowing requirements and feedback received during the Debt Management Strategy consultations in the fall of 2023, the government adjusted bond issuances across all sectors and allocated a proportionally larger share in the 30-year sector to reflect strong market demand for longer-dated bonds and to help address a supply/demand mismatch in this sector. As a result, the number of 5-year quarterly bond auctions increased from two to three, and the size of 2-year and 10-year bond auctions were also made larger.

Canada Mortgage Bonds

Following consultations with market participants, the government announced in the Fall Economic Statement 2023 that it would purchase up to $30 billion of Canada Mortgage Bonds (CMBs) annually to raise revenues for affordable housing initiatives. The government began these purchases in February 2024.

To ensure transparency regarding its purchases and holdings of Canada Mortgage Bonds, the government publishes relevant information on these transactions on the Bank of Canada website.

Federal Green Bond Program

With the publication of its updated Green Bond Framework in November 2023, Canada became the first sovereign green bond issuer to add eligibility for certain nuclear energy expenditures, demonstrating its commitment to being a global nuclear leader. Specifically, new eligible nuclear spending categories include:

• investments in new reactors;
• refurbishment of existing facilities;
• research and development; and,
• some investments in Canada's nuclear supply chain

This update aligns Canada's Green Bond Framework with actions outlined in Canada's 2030 Emissions Reduction Plan, updated international green taxonomies and best practices, and evolving investor preferences. Canada also obtained a new second party opinion on the updated framework from Sustainalytics, which states that it is credible and impactful while aligning with the four core components of the International Capital Market Association Green Bond Principles 2021.

On February 27, 2024, the Government of Canada successfully launched a 10-year, $4 billion green bond — Canada's second green bond and the first under the updated Framework. This offering saw robust demand from environmentally and socially responsible investors who represented a majority of buyers (66 per cent), as well as from international investors, who made up over 33 per cent of the investor base. The final order book stood at over $7.4 billion.

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.

Stock of Domestic Market Debt

The stock of domestic market debt increased by $112.0 billion in 2023-24, bringing the total debt stock to $1,371.9 billion. The change in the stock was comprised of a $64.1 billion increase in treasury and cash management bills, a $42.7 billion increase in marketable bonds payable in Canadian dollars, and a $5.2 billion increase in marketable debt payable in foreign currencies. Canada's general government net debt-to-GDP (gross domestic product) ratio was the lowest in the Group of Seven (G7) nations in 2023-24, according to the International Monetary Fund (IMF).

In 2023-24, as interest rates rose, the weighted average rate of interest on market debt increased to 2.90 per cent compared to 2.28 per cent in 2022-23. The increase was due to a combination of a higher interest rates and a larger proportion of treasury bills in an inverted yield curve environment.

Strong Demand for Government of Canada Debt Securities

In 2023-24, the relative strength of the Canadian economy and its capital markets continued to support demand for Government of Canada securities in primary and secondary markets. Accordingly, treasury bill and bond auctions remained well-covered and competitively bid, providing an efficient manner for the government to raise funding. The publication of the Quarterly Bond Schedule before each quarter and the Call for Tenders before each auction helped maintain transparency. This promoted well-functioning markets for the government's securities to the benefit of a wide array of domestic market participants, contributing to the objective of raising stable and low-cost funding.

Part I: 2023-24 Debt Management Context

Composition of Federal Debt

In 2023-24, total market debt increased by $112 billion to $1,371.9 billion (see Table 1). For additional information on the financial position of the government, see the 2022-23 Annual Financial Report of the Government of Canada.

Sources of Borrowings and Uses of Borrowings

The key reference point for debt management is the financial requirement or financial source, which represents the net cash outflow or inflow for the fiscal year. This measure differs from the budgetary balance (i.e., the deficit or surplus on an accrual basis) by the amount of non-budgetary transactions and the timing of payments on a cash basis, which can be significant. Non-budgetary transactions include changes in federal employee pension liabilities; changes in non-financial assets; investing activities through loans, investments and advances; and changes in other financial assets and liabilities, including foreign exchange activities. Details on financial requirements can typically be found in Annex 1 ('Economic and Fiscal Projections') of Budget publications. Refinancing maturing debt, in combination with financial requirements, form most of the government's financing needs. Anticipated borrowing and planned uses of borrowings are set out in the Debt Management Strategy, while actual borrowing and uses of borrowings compared to those forecasted are reported in this publication (see Table 2).

There was a financial requirement of $85.7 billion in 2023-24, reflecting $61.9 billion in cash outflows due to a budgetary deficit and a cash outflow of $23.9 billion due to non-budgetary transactions, including $7.6 billion funding for purchases of Canada Mortgage Bonds. For comparison, the financial requirement in 2022-23 was $66.2 billion^{Footnote 2}.

A number of Crown corporations receive debt funding under the Crown Borrowing Program. The Government of Canada borrows funds from the market and subsequently lends the fundings to these Crown corporations at the cost of GoC funding. In 2023-24, loans to the Business Development Bank of Canada, Canada Mortgage and Housing Corporation, and Farm Credit Canada under the Crown Borrowing Program were $94.1 billion, $7.9 billion higher than in 2022-23.

Borrowing Authorities

In order to undertake market borrowing activities, the Minister needs authority from Parliament as well as the Governor in Council (the "GIC").

Under the Parliamentary borrowing authority framework enacted on November 23, 2017, Parliamentary authority is granted through the Borrowing Authority Act (BAA) and Part IV of the Financial Administration Act (FAA), which together allow the Minister to borrow money up to a maximum overall amount as approved by Parliament. The FAA also authorizes the Minister to borrow in excess of the approved maximum amount under limited circumstances for the specific purposes of refinancing outstanding debt, extinguishing or reducing liabilities, and making payments in extraordinary circumstances, such as natural disasters.

Subject to the noted limited exceptions, the maximum stock of borrowings approved by Parliament in effect from May 6, 2021 was $1,831 billion, which also includes amounts borrowed by agent Crown corporations, and Canada Mortgage Bonds guaranteed by Canada Mortgage and Housing Corporation. As at March 31, 2024, the outstanding borrowings subject to the maximum amount was $1,688.4 billion ($1,573.8 billion as at March 31, 2023).

Part IV of the FAA also requires the Minister to receive annual approval from the GIC to carry out borrowing for the Government of Canada for each fiscal year, including issuing securities in financial markets and undertaking related activities subject to a maximum aggregate amount. On the recommendation of the Minister, the GIC approved $517 billion to be the maximum aggregate principal amount of money that may be borrowed by the Minister in 2023-24.^{Footnote 3} The maximum aggregate principal amount is the sum of the following sub-components: (i) the maximum stock of treasury bills anticipated to be outstanding during the year; (ii) the total value of refinanced and anticipated new issuances of marketable bonds; and (iii) amounts to facilitate intra-year management of the debt and foreign exchange accounts.

During 2023-24, $476 billion of the GIC-approved borrowing authority was used, $41 billion below the authorized borrowing authority limit (see Table 2).

Government of Canada Credit Rating Profile

Throughout 2023-24, the Government of Canada continued to benefit from high credit ratings from rating agencies, with a stable outlook, on Canadian-dollar and foreign-currency-denominated short- and long-term debt (see Table 3).

Rating agencies have indicated that Canada's sound macroeconomic policy framework and financial system, as well as Canada's economic resilience and diversity and the strength of monetary and fiscal flexibility, are all reflected in Canada's strong current credit ratings: Moody's (Aaa), S&P (AAA), Fitch (AA+), DBRS (AAA).

Part II: Report on Objectives, Strategic Direction and Principles

Objectives, Strategic Direction and Principles

Objectives

The debt management objectives in 2023-24 were to raise stable and low-cost funding to meet the financial needs of the Government of Canada and to maintain a well-functioning market for Government of Canada securities.

Strategic Direction

The Government of Canada continued to be a stable, strategic issuer in 2023-24, with marginal adjustments to the overall strategy relative to 2022-23. In Budget 2023, the Government of Canada announced its decision to cancel the issuance of the 3-year bond, effective in the second fiscal quarter, to consolidate issuances in the core sectors (2-year, 5-year, 10-year and 30-year), thereby supporting market liquidity in these markets.

Principles

In support of the objectives and strategic direction, the design and implementation of the domestic debt program are guided by the key principles of transparency, regularity, prudence, and liquidity. Towards this end, the government publishes strategies and plans and consults regularly with market participants to ensure the integrity and attractiveness of the market for dealers and investors. The structure of the market debt is managed conservatively in a cost-risk framework, preserving access to diversified sources of funding and supporting a broad investor base.

Raising Stable and Low-Cost Funding

In general, achieving stable and low-cost funding involves striking a balance between debt costs and various risks in the debt structure. This selected balance between cost and risk is mostly achieved through the deliberate allocation of issuance among various debt instruments and terms.

Market Debt Issuance in 2023-24

In 2023-24, total bond issuance was $204.0 billion, up from $185.2 billion in 2022-23, reflecting higher financial requirements and to a lesser extent, funding for Canada Mortgage Bonds. A large portion of the increase was allocated to the short-term sectors (2 and 5-year sectors). As a result, issuance in the short-term sectors was higher than projected in Budget 2023. Issuance of short-term debt instruments (2, 3, 5-year sectors)^{Footnote 4} increased to $139.0 billion in 2023-24 from $118.0 billion in 2022-23. On a percentage basis, the share of bond issuance made up by short term bonds increased to 68 per cent in 2023-24, up from 64 per cent in 2022-23 (see Table 4.2).

Overall, the allocation of long bond issuance (i.e., 10-year maturities and longer) was 30 per cent in 2023-24, 6 percentage points lower than the previous fiscal year, when it was 36 per cent (see Table 4.2) and at the same level projected in the plan set out in the Debt Management Strategy for 2023-24 tabled as part of Budget 2023 (see Table 4.3).

Market Debt Composition

The composition of the stock of market debt reflects past debt issuance choices (e.g., over the last 30 years for the 30-year sector). The effect of changes in issuance patterns of short-term debt instruments become visible relatively quickly, while the full effect of issuance changes in longer-term debt instruments takes the entire maturity period to be fully appreciated. A well-distributed maturity profile helps maintain a prudent risk exposure to changes in interest rates over time at an affordable cost, while promoting well-functioning markets by providing liquidity across different maturity sectors.

Composition of Market Debt by Remaining Term to Maturity

In 2023-24, the proportion of longer-term debt decreased to 30 per cent from 36 per cent in 2022-23 as the government adjusted issuance to shift away from the long-term emphasis adopted during the COVID-19 pandemic. This decline was absorbed by the 10-year sector as the government increased issuance in the 30-year to address liquidity pressure as expressed by market participants during the Fall 2023 Debt Management consultations.

Cost of Market Debt

Annual interest rate costs on market debt are the largest component of public debt charges (which also include interest expenses on non-market liabilities).^{Footnote 5} The weighted average rate of interest on the stock of market debt was 2.90 per cent in 2023-24, up from 2.28 per cent in 2022-23. Interest on market debt as a share of total government expenses increased from 5.41 per cent in 2022-23 to 7.08 per cent in 2023-24 (see Chart 3.1). This increase was primarily due to a combination of a higher interest rate environment and a larger proportion of treasury bills, as previously discussed.

While debt service costs are large on an absolute basis at over $47 billion, context is important. In 2023-24, the Government of Canada's total program expenses were $466 billion, supporting health expenditures, equalization payments, employment insurance and more. Debt service costs should be considered relative to GDP, as the government's capacity to service debt increases with growth in GDP. Canada's debt costs are low on a historical basis when considering debt service costs as a percentage of GDP (illustrated in Chart 3.2).

Market Debt: Average Term to Maturity and Debt Rollover

Prudent management of debt refinancing needs, which promotes investor confidence, involves Government of Canada actions that strive to minimize the impact of market volatility or disruptions to the funding program. According to a number of common measures of market debt refinancing risks, including average term to maturity (ATM) and debt rollover, the Government of Canada's market debt remained prudent through 2023-24 when compared to historical averages.

Average Term to Maturity

The ATM of market debt tends to rise and fall mostly with the composition of the stock of debt. In 2023-24, the ATM decreased slightly to 6.5 years, down from 6.9 years in 2022-23, reflecting the Government of Canada's decision to reduce issuance in the longer maturities (10 years and more) in 2023-24 (see Chart 4.1).

The weighted ATM is measured by weighting the remaining term to maturity of issued debt by its proportion to the overall debt stock.^{Footnote 6}

Canada has successfully built a prudent debt structure relative to GDP over the last 30 years. In general, low debt-to-GDP countries can choose a higher risk level (i.e., lower ATM) in exchange for lower interest rate costs. Overall, Canada is in line with other AAA-rated countries (see Chart 4.2).^{Footnote 7}

Debt Rollover: Quarterly Maturities to GDP

Debt rollover, measured as the amount of debt maturing per quarter as a percentage of GDP, increased to an average of 5.8 per cent in 2023-24 from an average of 5.1 per cent in 2022-23 (see Chart 5). This increase reflects an increase in the amount of debt maturing. The average annual debt rollover in 2023-24 is in line with the average over the previous decade of 5.4 per cent.

Debt Rollover: Single-Day Maturities

The government reduced the number of maturity dates in 2023-24 from 10 dates to 9 dates. Given that the 3-year sector was being phased out, there was only one maturity date of April 1 for this sector versus two in 2022-23. Following the significant increase in debt which began in 2020-21, single-day maturities remain high relative to historical averages. The government monitors the level of single-day maturities and may implement programs to effectively manage Government of Canada cash flows ahead of large debt maturities.

The benchmark maturity date profile is as follows:

• 2-year bonds: February 1, May 1, August 1, November 1
• 3-year bonds: April 1
• 5-year bonds: March 1, September 1
• 10-year bonds: June 1, December 1
• 30-year bonds: December 1 – although Real Return Bonds and nominal 30-year bonds mature on December 1, they do not mature in the same year.

Maintaining a Well-Functioning Government Securities Market

A well-functioning market in Government of Canada securities benefits the government as a borrower as it directly supports the fundamental objective of raising stable, low-cost funding, while also benefiting a wide range of market participants.

A well-functioning market helps the government have more certain access to funding markets over time, contributes to lower and less volatile interest rate costs for the government, and provides flexibility to meet changing financial requirements. For market participants, a liquid and transparent secondary market in government debt instruments provides risk-free assets for investment portfolios, stability to other domestic fixed-income markets for which the Government of Canada securities serve as benchmarks (e.g., provinces, municipalities and corporations), and a useful tool for hedging interest rate risk.

Providing Regular and Transparent Issuance

During 2023-24, the Government of Canada continued announcing bond auction schedules prior to the start of each quarter, and, provided details for each operation in a Call for Tender in the week leading up to an auction.^{Footnote 8} In 2023-24, there were regular auctions for 2-, 3-, 5-, 10- and 30-year bonds. To promote transparency in the market for Government of Canada securities, the Bank of Canada published bond issuance schedules as well as benchmark details ahead of each fiscal quarter within its Quarterly Bond Schedule publications available on the Bank website.

Concentrating on Key Benchmarks

All benchmark bonds in 2023-24 continued to reach or exceed minimum benchmark size targets (see Chart 6).^{Footnote 9} Compared to 2022-23, the benchmark target sizes for all bond sectors were bigger.

• 2-year bonds: $18 billion to $26 billion
• 5-year bonds: $18 billion to $26 billion
• 10-year bonds: $18 billion to $26 billion
• 30-year nominal bonds: $20 billion to $30 billion

Ensuring a Broad Investor Base in Government of Canada Securities

A diversified investor base supports an active secondary market for Government of Canada securities, thereby helping to keep funding costs low and stable. Diversification of the investor base is pursued by maintaining a domestic debt program that issues securities in a wide range of maturity sectors, which meet the needs of different investor types.

During 2023-24, domestic investors (including the Bank of Canada) held about 72 per cent of Government of Canada securities (see Chart 7). Among domestic investors, the Bank of Canada held the largest share of Government of Canada securities (18 per cent), followed by insurance companies and pension funds (18 per cent). Taken together, these top two categories accounted for just 36 per cent of outstanding Government of Canada securities.

In 2023-24, non-resident investors held 28 per cent of Government of Canada securities^{Footnote 10}, similar to previous years. This share of non-resident holdings of government securities is somewhat lower than the average share for G7 countries (see Chart 8).

Consulting With Market Participants

Formal consultations with market participants are held at least once a year to obtain their views on the design of the borrowing program and on the liquidity and efficiency of the Government of Canada's securities markets. These consultations helped to inform the Debt Strategy Management Strategy for 2024-25.

During the consultations held in September of 2023, the Department of Finance and the Bank of Canada attended bilateral in-person meetings with and received written comments from dealers, investors and other relevant market participants. These consultations sought the views of market participants on issues related to the design and operation of the Government of Canada's domestic debt program for 2024-25.

During the fall 2023 consultations, participants continued to view the Government of Canada securities market as functioning well despite higher supply and periods of heightened volatility in the global market. There was generally an appropriate supply-demand balance across different sectors, apart from the 30-year sector where market participants noted some supply/demand imbalances.

In the treasury bill sector, market participants noted strong demand reflecting higher economic uncertainty. Market participants overwhelmingly expressed a desire for the government to introduce a 1-month treasury bill, at least temporarily, to support the transition from Bankers' Acceptance in the Canadian money market, which were to be discontinued following the cessation of the Canadian Dollar Offered Rate (CDOR) in June 2024.

Market participants also noted that the discontinuation of the 3-year sector was well-received. More details on these discussions are available in the Fall 2023 Debt Management Strategy Consultations Summary, published on the Bank of Canada website on December 21, 2023.^{Footnote 11}

Securities Distribution System

As the government's fiscal agent, the Bank of Canada distributes Government of Canada marketable bills and bonds by auction to government securities distributors (GSDs) and customers. GSDs that maintain a certain threshold of activity in the primary and secondary markets for Government of Canada securities may become primary dealers (PDs), which form a select core group of distributors for Government of Canada securities. To maintain a well-functioning securities distribution system, government securities auctions are monitored to ensure that GSDs abide by the terms and conditions.^{Footnote 12}

Quick turnaround times enhance the efficiency of auctions and reduce market risk for participants. In 2023-24, the turnaround time for treasury bill and bond auctions averaged 51 seconds, while there were no buyback operations conducted. The average turnaround time in 2022-23 was 48 seconds.^{Footnote 13}

Monitoring Secondary Market Trading in Government of Canada Securities

Two important measures of liquidity and efficiency in the secondary market for Government of Canada securities are trading volume and turnover ratio.

Trading volume represents the amount of securities traded during a specific period (e.g., daily). Large trading volumes typically indicate that participants can buy or sell in the marketplace without a substantial impact on the price of the securities and generally imply lower bid-offer spreads.

The average daily trading volume in the secondary market for Government of Canada's bonds during 2023-24 was $46.6 billion, up $4.2 billion from 2022-23 (see Chart 9).

Turnover ratio, which is the ratio of securities traded relative to the number of securities outstanding, measures market depth. High turnover implies that a large proportion of securities change hands for a given amount available in the market, which is an indication of a liquid market.

In 2023-24, the annual debt stock turnover ratio in the Government of Canada secondary bond market, calculated as trading volume divided by average debt stock, increased slightly to 11.4x from 10.7x in 2022-23. The sectors with the highest monthly turnover during the fiscal year were medium-term bonds with maturities between 3 and 10 years at 15.1x, while Real Return Bonds had the lowest turnover at 0.2x (see Chart 10).

Supporting Secondary Market Liquidity

The Bank of Canada operates securities repo operations (SROs) whereby it makes a portion of its holdings of Government of Canada securities available through daily repurchase operations.^{Footnote 14} This provides a temporary source of Government of Canada nominal bonds and treasury bills to primary dealers to support liquidity in the securities financing market. The Bank of Canada conducted 247 SROs in 2023-24, compared to 249 SROs in 2022-23.

Regular bond buyback program

Bond buyback operations on a cash basis and on a switch basis involve the purchase of bonds with a remaining term to maturity of 12 months to 25 years. Bond buyback operations on a cash basis involve the exchange of a bond for cash. Bond buyback operations on a switch basis, on the other hand, involve the exchange of one bond for another (e.g., an off-the-run bond for the building-the-benchmark bond), on a duration-neutral basis.

There were no regular bond buybacks on a cash or switch basis in 2023-24.

Part III: Report on the 2023-24 Debt Program

Treasury bill and bond auctions performed well and demand for Government of Canada securities remained strong throughout the fiscal year as a result of persistent demand for high-quality sovereign debt securities, and Canada's strong fiscal and economic position.

Domestic Marketable Bonds

Bond Program

In 2023-24, gross bond issuance was $203.8 billion, $18.6 billion higher than the $185.2 billion issued in 2022-23. Gross issuance consisted only of issuance in nominal bonds since the Real Return Bonds were cancelled in 2022-23 (see Table 5).

Auction Result Indicators for Domestic Bonds

A total of 49 nominal bond auctions were conducted in 2023-24, compared to 59 auctions in 2022-23. This decrease in nominal bond auctions was largely due to the cancellation of the 3-year bond sector.

The auction tail represents the number of basis points between the highest yield accepted and the average yield of an auction. A small auction tail is preferable as it is generally indicative of better transparency in the pricing of securities. Average auction tails were higher than the 5-year average across all maturities except the 10-year sector.^{Footnote 15}

Auction coverage is defined as the total amount of bids received, including bids from the Bank of Canada, divided by the amount auctioned. All else being equal, a higher auction coverage level typically reflects strong demand and therefore should result in a lower average auction yield. Bond auction coverage was lower than the 5-year average for all maturities except in the 10-year and 30-year sectors (see Table 6).

Participation at Domestic Bond Auctions

In 2023-24, primary dealers' allotments for nominal bonds decreased to 60 per cent from 63 per cent in 2022-23, with customer allocations increasing from 36 per cent to 40 per cent (see Table 7),^{Footnote 16} excluding the Bank of Canada's allotment.^{Footnote 17} In aggregate, the 10 most active participants were in total allotted 76 per cent of nominal bonds auctioned in 2023-24.

Treasury Bills and Cash Management Bills

During 2023-24, $569.0 billion in 3-, 6- and 12-month treasury bills were issued, an increase of $153 billion from the previous year. There were five cash management bill operations compared to zero operations in 2022-23. As at March 31, 2024, the combined treasury bill and cash management bill stock totaled $267.4 billion, an increase of $65.6 billion from the end of 2022-23 (see Chart 11).

In 2023-24, all treasury bill and cash management bill auctions were fully covered with an average coverage ratio of 2.05x. For all treasury bill maturity sectors, auction tails were larger than the 5-year average but were lower for cash management bills. Coverage ratios for treasury bill auctions in 2023-24 were lower than the 5-year average for all treasury bill maturity sectors and for cash management bills (see Table 8).

Participation at Treasury Bill Auctions

In 2023-24, the share of treasury bills allotted to primary dealers declined by 3 percentage points to 59 per cent compared to 2022-23, and the share allotted to customers increased to 41 per cent from 38 per cent (see Table 9). The 10 most active participants were in total allotted 85 per cent of these securities.

Foreign Currency Debt

Foreign currency debt is used exclusively to fund the Exchange Fund Account (EFA), which represents the largest component of the official international reserves. The primary objectives of the international reserves are to aid in the control and protection of the external value of the Canadian dollar and provide a source of liquidity to the Government of Canada, if required.

The EFA is primarily made up of liquid foreign currency securities and special drawing rights (SDRs). Liquid foreign currency securities are composed primarily of debt securities of highly rated sovereigns, their agencies that borrow in public markets and are supported by a comprehensive government guarantee, and highly rated supranational organizations. SDRs are international reserve assets created by the IMF, the value of which is based on a basket of international currencies. The official international reserves also include Canada's reserves position at the IMF. This position, which represents Canada's investment in the activities of the IMF, fluctuates according to drawdowns and repayments from the IMF. The Report on the Management of Canada's Official International Reserves provides information on the objectives, composition and performance of the reserves portfolio.

The market value of Canada's official international reserves as at March 31, 2024 increased to US$118.0 billion from US$110.0 billion as at March 31, 2023. EFA assets, which totaled US$113.3 billion as at March 31, 2024, up from US$105.2 billion as at March 31, 2023, were held at a level that is consistent with the government's commitment to maintain holdings of liquid foreign currency securities at or above 3 per cent of nominal GDP.

The EFA is funded by liabilities of the Government of Canada denominated in, or converted to, foreign currencies. Funding requirements are primarily met through an ongoing program of cross-currency swaps funded by domestic issuances. As at March 31, 2024, Government of Canada cross-currency swaps outstanding stood at US$78.5 billion (par value).

In addition to cross-currency swaps funded by domestic issuances, the EFA is funded through a short-term US-dollar paper program (Canada bills), a global bond program, and a medium-term note (MTN) program (Canada notes and euro medium-term notes) which had a value of zero at year end. The funding method of choice depends on funding needs, costs, market conditions and funding diversification objectives (see Table 10).

As at March 31, 2024, the Government of Canada had four global bonds outstanding (see Table 11). The government had no medium-term notes outstanding as at March 31, 2024.

Cash Management

The Bank of Canada, as the government's fiscal agent, manages the Receiver General (RG) Consolidated Revenue Fund, from which the balances required for the government's day-to-day operations are drawn. The core objective of cash management is to ensure that the government has sufficient cash available, at all times, to meet its operating requirements.

Cash consists of money on deposit to the credit of the RG for Canada with the Bank of Canada. Cash with the Bank of Canada includes RG operating balances, and a $20 billion callable demand deposit held for the prudential liquidity plan (PLP).

In 2023-24, the year-end daily liquidity position increased by $24.8 billion to $63.0 billion (see Chart 12 and Table 12), reflecting higher liquidity needs.

Prudential Liquidity Management

The government holds liquid financial assets in the form of domestic cash deposits and foreign exchange reserves^{Footnote 18} to safeguard its ability to meet payment obligations in situations where normal access to funding markets may be disrupted or delayed. This promotes investor confidence. The government's overall liquidity levels are managed to normally cover at least one month (i.e., 23 business days) of net projected cash flows, including coupon payments and debt refinancing needs. The 23-day PLP requirement is a forward-looking measure that changes daily due to daily actual cash balances and new projected cash requirements.

Investment of Receiver General Cash Balances

In April 2022, the Bank indefinitely moved to a floor system of conducting monetary policy, which it implemented on March 23, 2020. Prior to the COVID-19 crisis, the Bank implemented monetary policy through a corridor system.

Under a corridor system, the Bank targets only a small amount of excess settlement balances. This creates an occasional need to inject liquidity into the payment system by auctioning off government funds that are in excess of the government's day-to-day operating needs and prudential liquidity plan. The Bank's auction of Receiver General cash balances to payment system participants thus allows participants to settle their payments without needing overnight advances from the Bank.

Conversely, under a floor system, the Bank does not target a specific level of settlement balances but instead provides a supply that is sufficiently large. Payment system participants can use these excess settlement balances to fund payments during the day.

Morning auctions of Receiver General cash balances were reintroduced on February 21, 2024. These operations had been suspended in August 2020 due to lack of participation.

There were 27 RG auctions conducted in 2023-24, compared to zero in 2022-23.

Annex 1: Completed Treasury Evaluation Reports

In order to inform future decision making and to support transparency and accountability, different aspects of the Government of Canada's treasury activities are reviewed periodically under the Treasury Evaluation Program. The program's purpose is to obtain periodic external assessments of the frameworks and processes used in the management of wholesale and retail market debt, cash and reserves as well as the treasury activities of other entities under the authority of the Minister.

Reports on the findings of these evaluations and the government's response to each evaluation are tabled with the House of Commons Standing Committee on Public Accounts by the Minister. Copies are also sent to the Auditor General of Canada. The reports are posted on the Department of Finance Canada website.

Annex 2: Debt Management Policy Measures Taken Since 1997

The fundamental objectives of debt management are to raise stable and low-cost funding to meet the financial needs of the Government of Canada and to maintain a well-functioning market for Government of Canada securities. For the government as a debt issuer, a well-functioning market attracts investors and contributes to keeping funding costs low and stable over time. For market participants, a liquid and transparent secondary market in government debt provides risk-free assets for investment portfolios, a pricing benchmark for other debt issues and derivatives, and a primary tool for hedging interest rate risk. The following table lists significant policy measures that have been taken to achieve stable, low-cost funding and ensure a well-functioning Government of Canada securities market.

Annex 3: Glossary

asset-liability management

An investment decision-making framework that is used to concurrently manage a portfolio of assets and liabilities.

average term to maturity

The weighted average amount of time until the securities in the debt portfolio mature.

benchmark bond

A bond that is considered by the market to be the standard against which all other bonds in that term area are evaluated against. It is typically a bond issued by a sovereign, since sovereign debt is usually the most creditworthy within a domestic market. Usually it is the most liquid bond within each range of maturities and is therefore priced accurately.

budgetary deficit

The shortfall between government annual revenues and annual budgetary expenses.

buyback on a cash basis

The repurchase of bonds for cash. Buybacks on a cash basis are used to maintain the size of bond auctions and new issuances.

buyback on a switch basis

The exchange of outstanding bonds for new bonds in the current building benchmark bond.

Canada bill

A promissory note denominated in US dollars, issued for terms of up to 270 days. Canada bills are issued for foreign exchange reserves funding purposes only.

Canada Investment Bond

A non-marketable fixed-term security instrument issued by the Government of Canada.

Canada note

A promissory note usually denominated in US dollars, and available in book-entry form. Canada notes can be issued for terms of nine months or longer and can be issued at a fixed or a floating rate. Canada notes are issued for foreign exchange reserves funding purposes only.

Canada Premium Bond

A non-marketable security instrument issued by the Government of Canada, which is redeemable once a year on the anniversary date or during the 30 days thereafter without penalty.

Canada Savings Bond

A non-marketable security instrument issued by the Government of Canada, which is redeemable on demand by the registered owner(s), and which, after the first three months, pays interest up to the end of the month prior to cashing.

cross-currency swap

An agreement that exchanges one type of debt obligation for another involving different currencies and the exchange of the principal amounts and interest payments.

duration

Measures the sensitivity of the price of a bond or portfolio to fluctuations in interest rates. It is a measure of volatility and is expressed in years. The higher the duration number, the greater the interest rate risk for bond or portfolio prices.

electronic trading system

An electronic system that provides real-time information about securities and enables the user to execute financial trades.

Exchange Fund Account (EFA)

An account that aids in the control and protection of the external value of the Canadian dollar and which provides a source of liquidity for the Government of Canada. Assets held in the EFA are managed to provide liquidity to the government and to promote orderly conditions for the Canadian dollar in the foreign exchange markets, if required.

financial source/requirement

The difference between the cash inflows and outflows of the government's Receiver General account. In the case of a financial requirement, it is the amount of new borrowing required from outside lenders to meet financing needs in any given year.

fixed-rate share of market debt

The proportion of market debt that does not mature or need to be repriced within one year (i.e. the inverse of the refixing share of market debt).

foreign exchange reserves

The foreign currency assets (e.g. interest-earning bonds) held to support the value of the domestic currency. Canada's foreign exchange reserves are held in the Exchange Fund Account.

Government of Canada securities auction

A process used for selling Government of Canada debt securities (mostly marketable bonds and treasury bills) in which issues are sold by public tender to government securities distributors and approved clients.

government securities distributor (GSD)

An investment dealer or bank that is authorized to bid at Government of Canada auctions and through which the government distributes Government of Canada treasury bills and marketable bonds.

interest-bearing debt

Debt consisting of unmatured debt, or debt issued on the credit markets, liabilities for pensions and other future benefits, and other liabilities.

Large Value Transfer System

An electronic funds transfer system introduced in February 1999 and operated by the Canadian Payments Association. It facilitates the electronic transfer of Canadian-dollar payments across the country virtually instantaneously.

marketable bond

An interest-bearing certificate of indebtedness issued by the Government of Canada, having the following characteristics: bought and sold on the open market; payable in Canadian or foreign currency; having a fixed date of maturity; interest payable either in coupon or registered form; face value guaranteed at maturity.

marketable debt

Market debt that is issued by the Government of Canada and sold via public tender or syndication. These issues can be traded between investors while outstanding.

money market

The market in which short-term capital is raised, invested and traded using financial instruments such as treasury bills, bankers' acceptances, commercial paper, and bonds maturing in one year or less.

non-market debt

The government's internal debt, which is, for the most part, federal public sector pension liabilities and the government's current liabilities (such as accounts payable, accrued liabilities, interest payments and payments of matured debt).

overnight rate; overnight financing rate; overnight money market rate; overnight lending rate

An interest rate at which participants with a temporary surplus or shortage of funds are able to lend or borrow until the next business day. It is the shortest term to maturity in the money market.

primary dealer (PD)

A member of the core group of government securities distributors that maintain a certain threshold of activity in the market for Government of Canada securities. The primary dealer classification can be attained in either treasury bills or marketable bonds, or both.

primary market

The market in which issues of securities are first offered to the public.

Real Return Bond (RRB)

A bond whose interest payments are based on real interest rates. Unlike standard fixed-coupon marketable bonds, the semi-annual interest payments on Government of Canada Real Return Bonds are determined by adjusting the principal by the change in the Consumer Price Index.

refixing share of market debt

The proportion of market debt that matures or needs to be repriced within one year (i.e., the inverse of the fixed-rate share of market debt).

refixing share of market debt to gross domestic product (GDP)

The amount of market debt that matures or needs to be repriced within one year relative to nominal GDP for that year.

secondary market

The market where existing securities trade after they have been sold to the public in the primary market.

sovereign market

The market for debt issued by a government.

treasury bill

A short-term obligation sold by public tender. Treasury bills, with terms to maturity of 3, 6 or 12 months, are currently auctioned on a bi-weekly basis.

ultra-long bond

A bond with a maturity of 40 years or longer.

yield curve

The conceptual or graphic representation of the term structure of interest rates. A "normal" yield curve is upward sloping, with short-term rates lower than long-term rates. An "inverted" yield curve is downward sloping, with short-term rates higher than long-term rates. A "flat" yield curve occurs when short-term rates are the same as long-term rates.

Annex 4: Contact Information

Consultations and Communications Branch
Department of Finance Canada
14^th floor
90 Elgin Street
Ottawa, Ontario K1A 0G5

Phone: 613-369-3710
Facsimile: 613-369-4065
TTY: 613-369-3230
E-mail: financepublic-financepublique@fin.gc.ca

Media Enquiries:
613-369-4000

Reference Tables

1. I - Total Liabilities, Outstanding Market Debt and Debt Charges, as at March 31
2. II - Government of Canada Outstanding Market Debt, as at March 31
3. III - Issuance of Government of Canada Domestic Bonds
4. IV - Outstanding Government of Canada Domestic Bonds, as at March 31, 2024
5. V - Government of Canada Cross-Currency Swaps Outstanding, as at March 31, 2024
6. VI - Crown Corporation Borrowings, as at March 31