The Department of Finance and the Bank of Canada today published consultation documents seeking public input on the operation of public debt programs.

The Debt Strategy 2005/06 Consultation Document seeks the views of market participants on, “the strategic direction of the domestic debt programs in light of evolving borrowing requirements and market trends, and on specific operational issues”. It considers the design and operation of the federal government’s domestic debt programs for fiscal 2005/06 and beyond and covers issues such as strategic issues on debt management and transparency, and operational aspects of debt programs.

The document says that an important factor in helping to maintain the level of gross issuance in future years is the size of the bond buyback program. Another important issue for the government and the Bank of Canada is transparency in the secondary market. One concern of market participants is the likely trade-off between greater transparency and the liquidity of the market, it notes.

Also, the government is reviewing its framework for distributing debt as part of a regular review of debt management policies and programs. That task is tackled in the Review of the Government of Canada Debt Distribution Framework document.

The document says that 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,” it notes.

The paper 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. It also aims to consider the impact of potential modifications on market participants’ activity in the fixed-income marketplace, particularly their participation at government securities auctions.

Comments from market participants are are due by November 15.