CLHIA calls on Ottawa to consider ultra-long bonds

The trade group argues that such a move would be good from both the government’s point-of-view, and for long-term investors. “From the government’s perspective, issuing ultra-long bonds would be good asset-liability management given the long-term nature of the government’s assets,” it says; noting that it would also allow the government to ensure low-cost funding for its financial needs.

And, at the same time, it suggests that such a move would, “support a broad investor base by attracting domestic institutional investors that are actively seeking longer-term investments.”

Indeed, CLHIA suggests that there would likely be strong demand for ultra-long government bonds, as Canadian government securities are generally viewed as a prudent investment. And, it notes that long-term institutional investors would likely be a strong source of that demand; particularly insurers, which typically have substantial long-term liabilities.

“One challenge for the industry is finding investments with safe and stable yields that match the duration of its very long-dated obligations,” it says. “In the absence of an appropriate duration-matching asset, such as ultra-long bonds, insurers face additional asset-liability management challenges and reinvestment risks.”

“Both from a risk management and diversification standpoint, therefore, we believe there would be demand for ultra-long bonds by Canada’s life and health insurance industry,” it says.

CLHIA also notes that the current period of exceptionally low interest rates “has posed a significant challenge” for Canadian insurers; and, it suggests that “efforts by the government towards greater long-term bond issuance can help alleviate some of the strain and support the supply of long-term financial products to Canadians.”