The federal government is not scrapping any of its benchmark bonds, but it is reducing the frequency of some of its auctions, according to its Debt Management Strategy for fiscal year 2006–07, which was tabled today by Minister of Finance Jim Flaherty in Parliament.

Flaherty said that the strategy is focused on maintaining a prudent debt structure and an efficient market for Government of Canada securities.

To lower public debt costs, the fixed-rate share of the debt will continue to be reduced from two-thirds in 2002–03 to a target of 60% in 2007–08. As a result, the outstanding amount of treasury bills will increase from about $131 billion at the end of 2005–06 to a range of $135 billion to $140 billion by the end of 2006–07. The total amount of marketable bonds issued in 2006–07 will be about $31 billion, $1 billion less than planned for 2005–06. Also, marketable bond issuance (net of buybacks) of about $23 billion will also be about $1 billion less than in 2005–06.

In 2005–06, the government began to reduce the size of the bond buyback program. This reduction will continue in 2006–07, with a planned amount of bond buybacks in the order of $7 billion to $8 billion, about $1 billion less than in 2005–06.

The stock of marketable domestic bonds is expected to decline from an estimated $237 billion at the end of 2005–06 to about $231 billion as a result of maturities and continued cash management buyback operations.

To accommodate the shift to a lower fixed-rate debt structure, several changes to the bond program’s design are also planned. The maturity date of new five-year bond issues will change from September 1 to June 1 to make them interchangeable with outstanding bonds. The government will continue to issue all the current benchmark bonds (i.e. two-, five-, 10- and 30-year). It will forgo one quarterly auction of the two- and five-year bonds where previous bond issues already provide a source of liquidity to the marketplace.

The five-year auction in the fourth quarter will be dropped from the issuance plan. The issuance of two- and five-year bonds will be reduced to take advantage of their fungibility with outstanding benchmarks. As in 2005–06, the government will not conduct a two-year bond auction in the fourth quarter of the fiscal year.

The strategy also notes that the floor for the repurchase of bonds will be reduced from $6 billion to $5 billion in all maturities to increase the amount of bonds eligible for purchase at buyback operations. And, to enhance bidding and participation in domestic debt operations, the Bank of Canada will target average turnaround times of less than three minutes for auctions and less than five minutes for buybacks. The maximum turnaround times will be reduced from 10 minutes to five minutes for auctions and from 15 minutes to 10 minutes for buyback operations.

The merits of consolidating some or all of the borrowing by major government-backed entities into government debt programs will be assessed, following up on an evaluation done by KPMG LLP in 2005–06, the government said. Also, research and consultations with market participants and regulators will continue on the transparency of the market for Government of Canada securities.