Operational Enhancements to Government Debt Programs

Ten-year Benchmark Issues

The Government of Canada plans to open a new benchmark issue at the next 10-year auction. The target benchmark size of $12 to $15 billion for the 10-year maturity will be maintained. However, this will result in a slight undershoot of the target for the current 10-year benchmark. This initiative is being taken in order to achieve an annual 10-year issuance cycle, which will maintain regularity and transparency and will contribute to the liquidity of the Government of Canada debt market. This measure will also support a liquid futures market by maintaining a viable basket of eligible government securities.

The size of 2-year auctions could be modestly reduced when a new 2-year benchmark is fungible with another Government of Canada issue for which the outstanding amount is already large. This measure will maintain large liquid 2-year benchmark issues while limiting the total amount of bonds maturing on certain maturity dates. This initiative would have a limited effect on the planned size of the bond program.

As announced in the Debt Management Strategy for 2002/03, the turnaround time for auctions will be reduced from 15 minutes to 10 minutes, and the turnaround time for repurchase operations will be reduced from 30 minutes to 15 minutes. Coincident with this change, the submission deadline for buyback on a cash basis will be advanced to 1:00 p.m. The shorter processing time will allow auction and buyback results to be published at 12:40 p.m. and 1:15 p.m., respectively, instead of at 12:45 p.m. and 1:45 p.m., thus reducing the time between the publication of auction and buyback results from 1 hour to 35 minutes. These measures, which are intended to reduce participants' market risk and support broad participation, will be implemented this autumn.

The bond buyback program will continue to target both high-coupon, illiquid issues and certain old, large off-the-run issues. For these large off-the-run issues, the government will not reduce the outstanding amount below $6 billion. When two or more issues are fungible, the total amount of Government of Canada bonds maturing on that date will be considered in the calculation of the $6 billion minimum threshold. However, the conditions governing the pilot cash-management bond-buyback program will apply when the bonds become eligible for this repurchase program. This measure is being taken to ensure that liquidity is maintained in these large off-the-run issues and is effective immediately.
Buyback operations using the switch method will be conducted more frequently and for smaller amounts. Overall, the scope of the pilot bond-switch program will be slightly increased. This will provide market participants with more frequent access to benchmark bond issues and help reduce market risk. This change is effective immediately.
Switch operations will typically be conducted on Wednesdays at 10:30 a.m. instead of 12:30 p.m. to reflect market participants' preferences and to increase the participation of institutional investors. They may also be held on Thursdays at 10:30 a.m. when appropriate Wednesdays are not available. These initiatives are effective at the next switch operation scheduled for Wednesday, 25 September 2002.

The basket of Government of Canada securities eligible for the pilot cash-management bond-buyback program will be broadened to increase the availability of securities at each repurchase operation. The program will continue to target bonds maturing within 12 months on those dates where the total amount of Government of Canada bonds maturing is greater than $6 billion. The threshold below which the government will not reduce the outstanding amount is maintained at $4 billion. However, when the outstanding amount on any of the specific targeted dates has been reduced below $5 billion, the next bond maturity date on which greater than $6 billion is maturing could be added to the basket of targeted bonds if cash-management considerations warrant it. Government of Canada issues targeted by the pilot cash-management bond-buyback program could thus include maturities up to a maximum of 18 months. This measure is effective immediately.