The government's move to pare its hugefinancing costs by shortening debt maturities has left more
room for other borrowers and sparked a lively market for
treasury bills, senior market analysts said.
    The Bank of Canada, Ottawa's fiscal agent in the
marketplace, revealed this week that sharply reduced borrowing
needs has allowed the shift toward shorter bond terms and
heavier emphasis on the weekly treasury bill auction, issued in
terms of up to one year.
    "The aggressive use of the treasury bill program has meant
that the government is now able to maintain lower cash balances
and lower financing costs," the Bank of Canada said in its 1986
annual report released this week.
    The government has said its budget deficit financing
requirements will fall to 24 billion dlrs in the fiscal year
ending March 31, 1987, from 30 billion dlrs the prior year.
Projected fiscal 1988 requirements are 21.3 billion dlrs.
    The bank said that of last year's 19 new government bond
issues, nearly two-thirds were for maturities of less than 10
years. Greater use was also made of bond auctions to market new
issues with terms in the two- to five-year range.
    Meanwhile, treasury bills outstanding at year end totalled
nearly 70 billion dlrs, an increase of 10.3 billion dlrs over
the year and 20 billion dlrs since 1984.
    Although the amount of money saved from moving away from
the long bonds was not disclosed, bond experts believe it was
considerable because of the much lower interest premiums paid
on short term debt.
    But market watchers were unsure what affect the move will
have on Japanese investors--who have been snapping up Canadian
bonds at a record clip--because of their traditional preference
for long term financings.
    Bond traders said the Japanese, who purchased a record 9.5
billion dlrs of Canadian bonds last year, have adapted to the
changes by buying longer term provincial issues and shifting to
the medium term issues offered by Ottawa.
    "Their (Japanese) buying over the course of the last six
months has been very much concentrated in the medium term
maturities," noted one Canadian bond trader who asked not to be
identified.
    Yet there was some concern a shortage could eventually
develop for bonds that mature in 10 or more years.
    Said David Gluskin, vice-president of Nesbitt Thomson
Bongard Inc, "When interest rates finally seem to have stopped
going down, there is going to be a flood of people trying to
lock in the long end and not everyone will be able to get in
the door."
    But bonds analysts said at the moment with interest rates
trending down, investors appear to welcome the change,
especially the greater treasury bill financing.
    "The wholesale market in treasury bills is very active,"
said Michael Berry, vice-president of the securities firm,
Walwyn Stodgell Cohran Murray Ltd.
    The change also improves receptivity in the market for
other borrowers, including provincial governments, the big
utilities and corporations.
    "There doesn't seem to any lack of bonds in the longer end
now, that also may be the result that any percieved shortage
has probably been taken up by provincial funding activities,"
commented Berry.
 Reuter
