Thanks to the budget surpluses posted in the ten years preceding the recession, the supply of Government of Canada bonds diminished regularly over that period. Once the recession hit, the supply rose sharply owing to the budget deficits that arose and financing contracted to implement economic stimulus measures, such as the Insured Mortgage Purchase Program.
When the assets acquired under this program mature in the near future, the supply of Government of Canada bonds will probably decrease. However, the supply of bonds issued by the provincial governments, which is already greater than the supply of Government of Canada bonds, will continue to grow.
Like the federal government, the provinces have adopted credible plans to redress their public finances. The share of provincial bonds outstanding held by foreign investors remains relatively low on a historical basis. Consequently, nothing prevents these investors from continuing to purchase provincial bonds in order to increase their holdings of Canadian public-sector debt securities.
Bond issues in Canada
In Canada, the federal government began registering budget surpluses in 1997, thus placing it in a position to reduce its debt. Shortly thereafter, the supply of marketable Government of Canada bonds held by the general public1 diminished year after year until 2008, at which time the economic slowdown and ultimately the recession caused the government to slip back into the red and to start growing its debt again. The debt was increased in 2008 and 2009 to finance in particular the Insured Mortgage Purchase Program.
On the whole, the provincial governments, too, registered budget surpluses in 1999 and 2000 and then from 2004 to 2007. However, they grew their outstanding debt moderately over these periods in order to finance the purchase of non-financial assets and, especially, financial assets. This is why the provinces’ supply of marketable bonds grew from 1999 to 2007 while that of Government of Canada bonds diminished.
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