Question Period: Real Return Bonds

By: The Hon. Clément Gignac

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CN Tower, Toronto

Hon. Clément Gignac: Honourable senators, my question is for the Government Representative in the Senate.

In her November 3 economic statement, the Minister of Finance had a few surprises for the financial sector. On the positive side, there were smaller-than-expected deficits for the previous and current fiscal years, and the government expressed an intention to return to a balanced budget within five years. However, the government’s decision to stop issuing real return bonds has caused some surprise among the country’s pension funds and insurance companies, which are the traditional purchasers of such products to protect themselves against inflation-related risks.

As my colleagues may recall, real return bonds were introduced with great fanfare in 1991, shortly after the Bank of Canada and the finance minister of the day jointly adopted a 2% inflation target. Now, as National Bank’s chief economist recently noted, Canada will be the only country that no longer issues real return bonds.

Senator Gold, my question is this: Can you clarify the reasons behind the finance minister’s decision to abruptly stop issuing real return bonds, since her economic statement contained only three lines to explain her decision?

Hon. Marc Gold (Government Representative in the Senate): Thank you for the question. I am told that following broad consultations in 2019, the decision was made to stop issuing real return bonds because of the very low demand for this product. The decision to cancel the real return bond program will also allow the government to maintain liquidity within core funding sectors at a time when the government’s financial needs are declining. I would be pleased to ask the government for further details and to inform this chamber should you wish me to do so.

Senator Gignac: Thank you for your answer, Senator Gold. I would appreciate it if you would do that. Following the announcement of the Department of Finance’s decision, the Canadian Bond Investors’ Association, which represents more than 50 of the largest institutional investors in the country, with over $1.2 trillion in assets under management, issued a press release yesterday asking the minister to reconsider her decision and to take more time to consult stakeholders and assess the ramifications of her decision.

Senator Gold, in the interest of promoting transparency and preserving the independence and credibility of the Bank of Canada, would the Minister of Finance be prepared to present the Bank of Canada’s recommendation on this decision to the Department of Finance?

Senator Gold: Thank you for the question. I will make inquiries with the government and try to get back to you soon.

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