Transcript: Interview with Canada DMO Funds Management Director General Matthew Emde
27 March 2025
By Marta Vilar – MADRID (Econostream) – Following is the full transcript of the interview conducted by Econostream on 13 March 2025 with Matthew Emde, Director General of Funds Management at the Canadian Department of Finance:
Q: In your 2024-25 Debt Management Strategy update you increased your issuance for this fiscal year from $228 billion to $241 billion and increased even more your focus on selling long-term debt. Do you expect that trend of higher issuance and a greater focus on long-term debt to continue in the 2025-26 fiscal year?
A: We'll continue to have a healthy debt programme next year and over the next few years. The main reason is just the maturity profile. This coming year the 5-year bonds that were issued during COVID will mature. This rollover is a big part of why our overall issuance is expected to remain robust. In terms of the longer-term issuance, the market has communicated to us via our annual consultation process that there is more demand for longer-dated products. We're taking that into account in developing our programme. But that said, given the robust size of our programme, we'll need to use the entire curve for the upcoming fiscal year.
Q: Which part of the curve is now attracting more demand from investors?
A: We continue to see strong demand across all sectors of the curve, and we see that in our strong auction results.
Q: So, there's no specific part of the curve that’s gaining more interest now?
A: No, we see it spread quite evenly.
Q: The fiscal year ends on March 31. What should we expect for the 2025-26 fiscal year in terms of bond issuance and its distribution throughout the period?
A: We aim to be a predictable and consistent issuer. We follow a predictable, preset schedule for our bond issuance - we space them evenly across the year. We don't prefund other than what may be needed to pay bonds maturing on April 1st, at the very start of our fiscal year. Like I said before, our robust maturity profile for the coming year means that we need to employ the entire curve to fund our programme.
Q: Have you already planned any syndications for this year?
A: We use syndication for our global bond, as part of the funding strategy for our foreign reserve portfolio. We also use syndication for our green bonds – this is a small part of our domestic programme, but we intend to be a consistent issuer in that space. Overall, though, the vast majority of our borrowing is through auctions.
Q: So, you have not announced when the syndications are going to take place yet, which size they will have or any other details.
A: For the upcoming fiscal year, that's correct – we have not announced those details.
Q: Last Tuesday (March 11) you issued a new bond denominated in US dollars. How did that go?
A: It went tremendously well. We were very happy with it. On March 11th, we issued a 5-year US$3.5 billion global bond. It was the biggest book we've seen in 15 years, at $13.9 billion. It was also very high quality. We were able to tighten pricing by 3bp during the deal and, in fact, pricing was among the tightest 5-year deals for peers since the beginning of 2025. So, we saw this as a great success.
Q: Why did you go for this? Was this something more opportunistic?
A: It's very standard. Typically for a number of years now, as part of our foreign reserve portfolio, we issue one global bond per year and we go sometime between January and the spring. It's slightly opportunistic in the sense that we're looking for good market conditions, however, our consistency in issuance leads the market to expect our issuance in this timeframe. Typically, we just issue once a year. The majority of our funding for foreign reserves is via swaps, but we do like to have the global bond in our toolkit as well and it's very popular with investors.
Q: So, should we expect Canada to issue any more USD bonds or reopen any of the existing USD bonds this year?
A: That's not our plan. As I mentioned, most of our USD funding is via swaps. So, currently there's no plan, although we are always attuned to market conditions.
Q: Do you think the pricing of this issuance suggests that investors are not necessarily expecting the trade war to hit Canada's finances very hard?
A: We were certainly encouraged by the pricing of this issuance. The issuance happened during a period of some market volatility. So, the fact that we were able to see such strong demand and a good pricing was very positive for us. I think it illustrates investors' ongoing confidence in Canada's resilient economy, sound fiscal position, and AAA credit ratings.
Q: Do you expect a potential trade war to eventually impact pricing and demand of Canadian debt, maybe even your rating?
A: For the first part of your question, we have seen a lot of uncertainty in the markets. We have seen some tariffs imposed. Yes, the situation is fluid and much could change, but I think the fact that in the midst of that we've seen solid ongoing demand for Canadian debt is very encouraging. And I think it reflects our strong fundamentals, our sound fiscal position, our resilient economy, the Canadian dollar status as a reserve currency and the depth and liquidity of our CAD market. All that underpins what's going to remain solid demand for Canadian debt in spite of the uncertainty and what may occur with tariffs. I think we've got a strong story to tell in terms of Canada's resilience and the market understands that. As for a potential change in our rating, we do not expect that. We are in regular contact with credit rating agencies. In our view, Canada's profile remains strong. Yes, there's a lot of uncertainty facing our economy, but as I've been saying, our institutional strengths, strong economic backdrop and relatively low cost of borrowing will support investor confidence in Canada debt and will continue to support our credit rating.
Q: You said you weren't expecting any more USD issuances, but should we expect any other foreign currency issuances throughout the year?
A: That's not in our plans currently. We have issued in other currencies in past years, but not in a while. USD issuances have been well suited for us because while our foreign reserve portfolio consists of US dollars, euros, sterling and yen, most of it is US dollars and the infrastructure for USD issuances is well established. We do consider options with other currencies, from time to time, but it's not front of mind right now.
Q: What could the economic impact of a tariff war with the US be, after the latest developments?
A: The economic impact will depend on the duration, scope, and the magnitude of the tariffs, so there is a wide range of possibilities. If they're long-lasting 25% tariffs on all Canadian exports to the US, it's clearly going to have a significant impact, probably like [Bank of Canada] Governor [Tiff] Macklem has said, tipping Canada into a recession. But even if tariffs are short-lived, we think the uncertainty from it will have an economic impact. In fact, we're seeing some of that already among consumers and businesses. Consumer confidence is declining to low levels. Households are saying they're going to slow some their spending; home sales have slowed. Business confidence has fallen too, with some firms indicating they're going to pull back on hiring and investment plans. There’s a wide range of potential economic outcomes, but certainly the impact will be negative. That said, this is clearly a global challenge, and Canada is facing this from a position of strength. Real GDP growth was 2.6% in the fourth quarter of last year, the labour market added nearly 200k jobs in the last three months alone, and inflation has remained near to 2%. That success getting inflation back to target allowed the Bank of Canada to cut rates over 200 basis points and that relief on rates is still flowing through the economy, helping cushion some of these negative effects from uncertainty.
Q: What scenario will you incorporate into your year-ahead outlook in this regard?
A: The long-standing practice of the Canadian government when we do our fiscal forecasting is that we survey private sector forecasters – that is the basis for our economic and fiscal outlook. We have done this since 1994, and helps ensure objectivity, transparency, and an element of independence in the government’s economic and fiscal forecast. This practice has been strongly supported by international organizations such as the IMF. The latest economic forecast is from our 2024 fall economic statement. If and when a budget for 2025 is published, it will include an updated economic forecast based on an updated survey of private sector forecasters. At the same time, it has been the practice of the government to publish economic scenarios along with the baseline forecast. We did this in the 2024 fall economic statement. While in the fall statement the private sector forecasters didn't incorporate US tariffs at that time, we published a downside economic scenario that incorporated slower global growth, heightened uncertainty, and renewed trade disruptions.
Q: The end of the quantitative tightening programme is expected to take place soon. How big of an impact might this have on Canadian bonds and on your issuance strategy for this fiscal year?
A: Since the introduction of quantitative tightening in 2022, we have continued to see strong demand and excellent auction coverage, indicating that the marginal investor is actively participating. So, when QT ends, we don't expect to see a material impact on Canadian bonds. The Bank of Canada has stated that when QT ends, they're going to start by purchasing term repos, followed by T-bills. And they said that when they start purchasing bonds, it's going to be secondary market purchases rather than at our primary auctions. So, the evolution of the switch to business-as-usual asset purchases by the Bank will be something we'll be closely monitoring, but at this point we don't expect any significant impact.
Q: The 2-year spread between US and Canadian bonds has not been this wide since 1997. Is this a concern for you? Is it the US or is it Canada that is driving this movement in the spread?
A: The wide spread primarily reflects the different economic, inflation and monetary policy paths between our two countries. It's both Canada and the US that are driving it. Canada has seen softer economic growth recently and inflation back to target, whereas the US has seen stronger growth and inflation still running at 3%. The different monetary policy paths are a key driver of the wide Canada-US spread. So, given that we see it as driven by fundamentals, it’s not a concern in the sense that we expect a sudden adjustment to occur. As fundamentals change this spread could change, but we don't expect s sudden large change.
Q: Will you take advantage of the current environment for Canadian bond issuances now to deliver any buybacks this year?
A: After a pause during COVID, our bond buyback operations resumed in November 2022. But just to be clear, our bond buyback programme is very targeted. We use it is to effectively manage government cash flows ahead of large bond maturities. We're not at this point foreseeing a change in that programme.
Q: We’re having a federal election soon in Canada. Will this early election process keep buyers less aggressive than otherwise would be expected?
A: I don't think so. Investors knew an election was coming this year regardless. We have fixed election dates, there was going to be an election by October 20th at the latest. We continue to issue on a regular schedule and work with market participants to ensure they know from our point of view it's business-as-usual. I don't think the Canadian political situation is an issue for investors, as we have very stable government transitions. I don't see it as affecting market demand.
Q: In your latest 2024-25 update, you said that the issuance of a one-month T-bill had been sufficiently serving its purpose, and a review of the tenor had been deemed as appropriate ahead of the budget. As far as I know, this new treasury bill tenor was introduced as a temporary programme for one year. Are you planning to stick to it in 2025-26?
A: We introduced it on a temporary basis, and it was to support the orderly transition away from bankers' acceptances. In our fall statement we said we were reviewing this. We received feedback from our market consultations in the fall that market participants felt it was useful, but that the product was no longer needed to support the market transition. So, we're considering the matter. What debt products we issue is a ministerial decision.
Q: Despite recent developments, the Canadian dollar has been weak for a while, but the Bank of Canada hasn’t shown much concern about it. At the recent peak near 1.4793 (Feb 3) the Loonie had depreciated >23% since June 2021, >13% since July 2023. Does this matter for your investor base? Will it matter in the future if it continues to weaken?
A: The government doesn't comment on the value of the dollar. We really try to remain agnostic. We think Canada's free-floating exchange rate regime has served us very well over the years. It acts as an economic shock absorber and enables the Bank of Canada to just focus on its inflation goals without the distraction of exchange rate movements. That's why the Bank hasn't seemed very concerned about it. To your question, does it matter for our investor base? So far, we have not seen any decline in demand for Canadian debt. I think that reflects our solid fundamentals, which we expect to continue.
Q: In August last year the C.D. Howe Institute called for the Canadian government to reverse the cancellation of the inflation-linked bond programme (RRB). Are you planning to reverse that anytime soon? If not, what would it take to reopen it?
A: Currently there is no plan to reintroduce them. This was considered over a number of years. We ran consultations between 2019 and 2022, and basically what we found is there was low demand for this product. So, the government concluded that this programme was not meeting its objectives. I'd say at this point the bar is high for it to be reopened. We're not actively considering it.