Executive Summary

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As part of their regular review of debt management policies and programs, the Department of Finance and the Bank of Canada, on behalf of the Government of Canada, are seeking the views of interested parties on the design of the framework for distributing the government's debt securities.

The purpose of the framework is to raise stable, low-cost funding for the government and to support the government's debt strategy objective of maintaining a well-functioning market for Government of Canada securities.

Within this framework, the government strives to attract broad, competitive participation and active bidding at its auctions of marketable bonds and treasury bills. The framework also seeks to reinforce the integrity of the auction process.

This paper provides background information for consultations with interested parties and serves to:

  • provide interested parties with a broad understanding of the government's goals with respect to the debt distribution framework and the trends that have evolved since the framework was last amended in 1998; and
  • generate discussion on the effectiveness of the current framework and the impact of possible changes to the current framework on participants and on the functioning of the domestic fixed-income environment over the medium term.

A number of trends have developed in the government securities market, suggesting that a review of the framework is warranted. These include a modest decline in the net issuance of government bonds due to debt reduction, a change in the government's target debt structure, and continued improvements in the transparency and efficiency of the auction process. Since the previous review, there has been: an evolution of debt management practices of other governments; an increase in the concentration of auction participation and secondary-market trading; interest in direct participation at auctions by institutional and retail investors; greater price transparency; and the advent of electronic trading systems.

In designing the debt distribution framework, the government must balance a variety of interests: its own interest in competitive auctions that achieve the lowest funding cost on a consistent basis; securities dealers' interest in access to government securities and awareness of trading flows; and investors' interest in paying a reasonable price for government securities.

This document describes market trends and identifies potential modifications to the debt distribution framework, aimed at ensuring broad and active participation in the primary market for government securities and well-functioning operation of secondary markets. Questions are raised to gauge the impact of potential modifications on market participants' activity in the fixed-income marketplace, particularly their participation at government securities auctions. Interested parties are also encouraged to identify any other changes to the framework that may enhance the distribution of Government of Canada securities and the functioning of the domestic fixed-income market.