The Bank of Canada has released the results of its consultations on the Real Return Bond program.

In September and October 2003, officials from the Department of Finance and the Bank consulted with market participants on issues specific to the RRB program. These comments received will be taken into consideration in the development of the debt strategy for 2004/05.

During the consultations, Finance and the Bank received input from more than 50 institutional stakeholders, including primary dealers, government securities distributors, institutional investors, and pension consultants. They also received comments from institutional and retail investors. A summary of comments received is being made public on the Bank’s Web site.

Overall, market participants were of the view that RRBs provide value and that the government should continue to issue them. They suggested that current and future demand for RRBs would be robust mainly because of strategic investment by firms and individuals with inflation-linked liabilities and because of the diversification benefits that RRBs provide.

Also, market players generally found that the primary market functions well and that conditions in the secondary market have improved, although liquidity is naturally lower in the secondary market than in the nominal bond market, given the buy-and-hold nature of most RRB investments. There was no consensus on how to improve the product’s design or on improving liquidity in the secondary market.