# Govt of Canada 50 Year Bond



## liquidfinance (Jan 28, 2011)

This has to be a fairly sure sign that the only way for interest rates is up.

http://www.cbc.ca/news/business/canadian-government-announces-sale-of-50-year-bonds-1.2624394


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## HaroldCrump (Jun 10, 2009)

This is hilarious.
Yet another wonderful side effect of ZIRP, QE, and LSAP.

A perfect excuse for the govt. to continue their spending binge.
They will get the money now, and spend it now...and all that will be left for the future generations will be massive debt to be paid back 50 years later (or written off, who knows).
Yay, more govt. spending programs coming to a town near you.


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## Just a Guy (Mar 27, 2012)

A little inflation should make it pretty much free money.


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## andrewf (Mar 1, 2010)

HaroldCrump said:


> This is hilarious.
> Yet another wonderful side effect of ZIRP, QE, and LSAP.
> 
> A perfect excuse for the govt. to continue their spending binge.
> ...


Aren't they just rolling over existing debt? The fed government is pretty close to balance, so they aren't adding to the stock of debt.


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## HaroldCrump (Jun 10, 2009)

andrewf said:


> Aren't they just rolling over existing debt? The fed government is pretty close to balance, so they aren't adding to the stock of debt.


It sounds like they are extending the term, too.
20 or 30 year used to be the norm.

I have no doubt it makes wonderful sense for the government.
Lock in the low rates while it's still around.
Let's take our AAA rating for a spin and see what happens.

Low yields create perverse incentive for government to spend more money in the present, and push the debt further out in time.


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## the-royal-mail (Dec 11, 2009)

This was discussed on LOLX last night. KOL expressed the opinion that he would only buy one of these bonds if he was offered 6.5%. Otherwise it's a bad deal for the buyer.


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## HaroldCrump (Jun 10, 2009)

I believe the technical term he used was : _toxic waste_ :biggrin:


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## Beaver101 (Nov 14, 2011)

But who's going to bite? :snowman:


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## Spudd (Oct 11, 2011)

In the CBC article, they said they were already sold. 

Finance Minister Joe Oliver says the government has successfully sold $1.5 billion in 50-year Government of Canada bonds to take advantage of a strong bond market and low interest rates in order to lock in long-term funding.


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## andrewf (Mar 1, 2010)

I believe there is a reason why KO'L is an entertainer, and not an investor. The people who make those decisions in real life (and not on TV), don't necessarily agree.

By the sound of things, you'd think you guys would be happier if the government kept all their borrowing on their credit card at 19.99%....  

I was strongly opposed to the decrease in the fiscal balance since the Tories came to office. Had they not decreased taxes and raised spending so drastically, the debt could have been $200 billion lower than it is today. The GST cuts alone represent about $90 billion in additional debt.


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## the-royal-mail (Dec 11, 2009)

A fool and his money are soon parted.


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## HaroldCrump (Jun 10, 2009)

Spudd said:


> In the CBC article, they said they were already sold.
> 
> Finance Minister Joe Oliver says the government has successfully sold $1.5 billion in 50-year Government of Canada bonds to take advantage of a strong bond market and low interest rates in order to lock in long-term funding.


Yes, the issue is already sold out.
Sovereign governments around the world have a captive market for their bonds, esp. AAA rated countries like Canada, in insurance companies, pension funds, and banks that are required to meet the new capital requirements (Basel-III, etc.).

Apparently, the yield on the 30 yr. was 2.94% and the yield on the newly issued 50 yr. was only 2 bps higher.
They could have done 99 year bonds @ 3% and there would still have been a market.


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## HaroldCrump (Jun 10, 2009)

andrewf said:


> By the sound of things, you'd think you guys would be happier if the government kept all their borrowing on their credit card at 19.99%....


I don't speak for KOL obviously, and his remark is a side distraction in this matter.



> I was strongly opposed to the decrease in the fiscal balance since the Tories came to office. Had they not decreased taxes and raised spending so drastically, the debt could have been $200 billion lower than it is today. The GST cuts alone represent about $90 billion in additional debt.


You fail to see the revenue and spending separately.
There is nothing whatsoever wrong with the GST cut per se.
Similarly, there is nothing wrong with the TFSA, or even doubling the TFSA.

What is wrong is the increase in spending.
I agree that this govt. has overseen one of the largest expansions of the public sector in recent history.

Keeping the GST at 7% to fund this spending binge is not the answer.

What about your dearest to heart Taxtario govt?
They haven't cut any taxes - they have consistently increased taxes since 2004.
So why don't they have a lower deficit?
By this time, they ought to have had a surplus.

Even now, it is highly unlikely that they will balance the budget by 2018.
It is a highly convenient date - the current sorry crew will be long gone by then, having taken their juicy pensions and either retired, or taken up lucrative employment in the private sector as govt. lobbyists (just like David Miller, Dwight Duncan, etc.).


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## andrewf (Mar 1, 2010)

HaroldCrump said:


> What about your dearest to heart Taxtario govt?
> They haven't cut any taxes - they have consistently increased taxes since 2004.
> So why don't they have a lower deficit?
> By this time, they ought to have had a surplus.


This is demonstrably false Harold. How am I supposed to deal with you when you deny basic facts? How have corporate income tax rates changed since 2003? You just seem to refuse to see this in any kind of reasonable and dispassionate way. I feel like there's no point even talking to you about this, as you're blind with fury on any topic related to taxation. 

Why is there is a deficit in Ontario? Because of higher spending and lower revenues due to the recession. Ontario needs to take significant steps to improve its fiscal balance. 




> Even now, it is highly unlikely that they will balance the budget by 2018.
> It is a highly convenient date - the current sorry crew will be long gone by then, having taken their juicy pensions and either retired, or taken up lucrative employment in the private sector as govt. lobbyists (just like David Miller, Dwight Duncan, etc.).


Hardly unique to this government. What have you to say about Jim Prentice or Saint Jim Flaherty taking jobs at big banks after leaving government? Your partisan blinders are fully engaged.


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## HaroldCrump (Jun 10, 2009)

andrewf said:


> This is demonstrably false Harold. How am I supposed to deal with you when you deny basic facts? How have corporate income tax rates changed since 2003?


What about the Health Tax of 2003?
What about the HST of 2008?
There were several smaller slew of taxes in the middle, such as the eco tax, the increase in dividend taxation.



> Why is there is a deficit in Ontario? Because of higher spending and lower revenues due to the recession.


The same excuse/argument can be applied to just about any level of govt.
You say this federal govt. has created a deficit by lowering taxes?
Well, it was _because of higher spending and lower revenues due to the recession_



> Ontario needs to take significant steps to improve its fiscal balance.


Such as...raising taxes, right?


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## andrewf (Mar 1, 2010)

I didn't say that they did not raise taxes. That is plain to see. You argued that they never cut taxes either, which is false. 



> The same excuse/argument can be applied to just about any level of govt.
> You say this federal govt. has created a deficit by lowering taxes?
> Well, it was because of higher spending and lower revenues due to the recession


Ontario and the fed government are a bit different in that the fed government had net tax cuts, which effectively reduced revenue. Ontario since 2003 had a net tax increase, so tax cuts aren't really a factor in the deficit in Ontario. The recession played a role for the federal government as well, but had they not implemented net tax cuts, the debt would be over $100 billion lower than it is today, rather than higher than when they took office. 




> Such as...raising taxes, right?


Perhaps. I think more needs to be done to reduce/constrain spending, though. I am not rigidly opposed to either. We need to have an adult conversation about where and how we allocate public spending. Raging about taxes is not likely to persuade others to listen to you. Taxation is necessary and a fact of life.


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## Beaver101 (Nov 14, 2011)

andrewf said:


> I didn't say that they did not raise taxes. That is plain to see. You argued that they never cut taxes either, which is false.
> 
> Ontario and the fed government are a bit different in that the fed government had net tax cuts, which effectively reduced revenue. Ontario since 2003 had a net tax increase, so tax cuts aren't really a factor in the deficit in Ontario. The recession played a role for the federal government as well, but had they not implemented net tax cuts, the debt would be over $100 billion lower than it is today, rather than higher than when they took office.
> 
> Perhaps. I think *more needs to be done to reduce/constrain spending*, though. I am not rigidly opposed to either. We need to have an adult conversation about where and how we allocate public spending. Raging about taxes is not likely to persuade others to listen to you. Taxation is necessary and a fact of life.


 ... spending for infrastructure, health care, etc. is also a fact of life so how about the political mandarins start finding ways to stop "wasting" and "double-dipping" $$$ from the public's purse? Eg. eHealth, gas plant, ORNGE, on and on and on? :disgust: 

Better yet, poll the greater public and ask them what do they really want from our politicians/government - paid more taxes or them doing a better job and start being fiscally responsible?


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## HaroldCrump (Jun 10, 2009)

andrewf said:


> I think more needs to be done to reduce/constrain spending, though.


Ya think !
Taxtario's problems are almost entirely spending related.
There is no scope for increasing taxes, and neither will the electorate put up with any tax increase given the minority govt.

For all my disgust at McGuinty, he had at least started making some half-hearted austerity moves in his last days.
At least he made noises about it.
He was promptly replaced with an out-and-out tax-and-spend fiscalist.



> We need to have an adult conversation about where and how we allocate public spending. Raging about taxes is not likely to persuade others to listen to you. Taxation is necessary and a fact of life.


I am not denying that.
However, there is no _adult conversation_ taking place whatsoever.
There are some very rigid, deep vested interests in the province that are preventing any sort of discussion around govt. spending.

If your only hope of a more reasonable financial situation for the province is an _adult conversation_ around govt. spending, well, don't hold your breath.

This is exactly the type of situation that creates polarization and partisanship - when folks disgusted and fed up with tax-and-spend politics take the opposite extreme position.
This is what breeds a Mike Harris type of administration that has to come around every 15 - 20 years to implement indiscriminate cuts to public spending and rein-in the unions/public sector.


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## andrewf (Mar 1, 2010)

They do poll the public. Every four years or so. Some call it the only poll that matters.


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## andrewf (Mar 1, 2010)

For all the disgust, the Liberals and NDP still outpoll the Tories, combined. And that is after Hudak has basically said he won't make any major spending cuts. Promising to 'stop the gravy train' might get voters fired up, but it's not really a policy and it doesn't really lead to results. Look at Ford and his failure to get anything done at City Hall. 

We need to talk about how much we're going to cut spending on education and health care. That's how the budget is going to be balanced. Pretending the fiscal imbalance can be closed without changes to taxation or spending cuts in these areas is just dishonest. Let's see Hudak campaign on those education and health cuts.


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## HaroldCrump (Jun 10, 2009)

I am not suggesting at all that Hudak is the panacea for Taxtario's fiscal woes.
He has proven himself to be an insipid leader in two elections now.
Whether he can do better the third time or not remains to be seen, if he is even retained as the party leader.

I'd like to point out that Hudak has not said he will not make any major spending cuts.
He has said he will gut the green power subsidies, stop bailouts and grafts to companies like Samsung and Open Text, and immediately abolish the College of Trades.

That aside, large buckets of spending like "education", "health care", "infrastructure", etc. get lumped together, even though there are many parts of it.
In the case of infrastructure, there are capital costs, operational costs, and the bureaucratic overhead costs (such as the whole Metrolinx corporation).
In the case of education, there is the question of teachers' compensation (which is a hot button political issue), which gets rolled into the overall education spending.
Then there are sub-programs like full day kindergarten, extended day care, etc. which all get rolled into education spending.

Then there are various boondoggles (more in this administration than others), which are muddying the numbers and distracting from a reasonable debate around spending (eHealth, ORNGE, gas plants, and so on).

There is a lot of non-core spending/waste going on here that is getting lumped with large words like "education spending", "infrastructure spending", etc.
In the last few years, "invest in education" has been an euphemism for giving more raises and benefits to the teachers union.
"Invest in infrastructure" is an excuse for expanding Metrolinx and constructing very expensive projects like the UPE, Pan Am Games, the whole Presto farecard boondoggle, etc.

The debate that we need is :
_- What are the various components of each of these buckets of spending
- How much is each component costing (esp. compensation)
- Which components are core and which are dispensable
- What can be done to reduce the cost of each service i.e. compensation costs, without reducing the level and quality of service_

Contemplating provincial spending in large bucket, headline items like "education", "health care", "infrastructure" will not be helpful because _of course_ no one wants to cut education, health care, and infrastructure.


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## sags (May 15, 2010)

One way for the government to collect revenue............it to actually collect it.

Corporations are paying far less than the "corporate rate". Legal loopholes allow the transfer of profit to offshore accounts and other tax avoidance strategies.

Close the loopholes, collect the taxes due.............and then talk about cutting services.

In 2011, Canadian business claimed they "invested" 53 Billion dollars in the Bahamas. It is estimated Canada loses 80 Billion dollars a year from uncollected taxes......due to legal transfers of capital to offshore accounts and the practice of "transfer pricing".

The business executives admit doing it.........but as it is perfectly legal.......... it will continue.

_"It's not right," Mr. Manley said. "But figuring out how to fix it without unintended consequences requires really smart people, and the Organization for Economic Co-operation and Development has been working at this for a very long time."

Mr. Manley said the Canadian Council for Chief Executives supports the OECD's efforts, but until the Canadian tax code changes, businesses have every right to take advantage of what the code allows.

"There is no one in Canada who wouldn't avoid paying a tax if there is a legal way to do it," he said. "It doesn't mean it's wrong to minimize your tax. It just means that governments have to get rules in place and make sure everyone is playing by them."_

http://www.cbc.ca/news/business/cor...t-contributes-in-lots-of-other-ways-1.2621944


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## HaroldCrump (Jun 10, 2009)

This was discussed on the LOLX again last night - this time with Som Seif.
Som agreed that it is nuts to buy this bond, even for insurance companies and pension funds.
Anytime during the next 50 years, CPI can be a lot higher than 2.96%. 
At that time, CPI-pegged pensions will have to increase payouts substantially, but they have locked in their investments at a 2.96% yield (albeit surely this is a small component of their overall portfolio).

And retail investors should not even think of buying this.


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## james4beach (Nov 15, 2012)

Good move by government. This is exactly what they should be doing... it's prudent, and a good trade (I believe).

According to Bloomberg, the 50 year bond carried a lower yield than the 30 year bond. The borrower (Canada) got an additional 20 years FOR FREE !

Not only that, but the coupon is only 2.75%. Realistically that is the only ongoing cost to the government... this is a TINY coupon. Personally I think the buyers (pension funds etc) are insane to buy this.

P.S. this trade may be an indication that the economy of Canada is expected to be stagnant, near-zero growth for the next 50 years.


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## HaroldCrump (Jun 10, 2009)

james4beach said:


> P.S. this trade may be an indication that the economy of Canada is expected to be stagnant, near-zero growth for the next 50 years.


Ha, neither the bond issuers nor the buyers have the foggiest idea what will happen in 50 years.
Geez, they don't even know what will happen in the next 50 days (e.g. TSX hit its all time high in June 2008, before crashing spectacularly within the next 90 days).

IMHO, all that the 2.75% yield reflects is the grotesque distortion in the global money markets i.e. how the "price of money" has been rigged via ZIRP, QE, and LSAPs

Anyhow, good trade for the govt., bad trade for the buyers.


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## james4beach (Nov 15, 2012)

I agree, it's probably an indication of how ZIRP and QE have seriously warped the current markets. Both stocks and bonds are behaving very unusually, in a historical sense.

Sustained ZIRP is not healthy, it's something that happens in a sick market, not a healthy one


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## doctrine (Sep 30, 2011)

Stocks aren't behaving irrationally, in my opinion. They are above average long term valuations, sure, but they've been far more ridiculous on numerous occasions in the past.

Bonds, on the other hand, are completely in the irrational world. All time record low interest rates are being set. Some places have seen negative interest at times during the Greece crisis - not only foregoing interest but actually paying to hold money. That's the very unusual part. 50 years at 2.96%. $1.5B is a drop in the bucket in the bond world though. Great deal for Canada though. They should lock as much debt as they can at those rates. What is $1.5B going to be worth in 50 years when the principal is due?


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## My Own Advisor (Sep 24, 2012)

I sold all my bonds (bond ETFs) a few years ago. I got tired of the peanuts there were paying (and would be paying for the foreseeable future).

50 years at less than 3%. Inflation might be more than that this year let alone the next few decades.

Doesn't anyone else think people are suckers for investing in this stuff? A product that barely beats inflation?

Great deal for government. Horrible deal for investors. That's just me.


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## james4beach (Nov 15, 2012)

I agree that the bond market (credit) is ground zero for what's "wacky" today in markets.

The reason I say stocks are also unusual is that the entire economy is heavily dependent on debt. The economy, individuals and companies, are heavily leveraged. For instance these days we have companies borrowing money in order to pay dividends. That's just one small example. A bigger example is that consumer spending is heavily tied to debt, including real estate debt.

Companies (equities = stocks) are also heavily dependent on low interest rate financing. Banks are completely dependent on low interest rates, and are heavily leveraged.

So yes, bonds are ground zero for wackiness, BUT low interest rates now under-pin the entire economy. This results in distortions in the stock market too, in my opinion. Corporate earnings are very dependent on low interest rates and the real estate market (which is also a debt story).

Low interest rates therefore fuel corporate earnings and asset valuations, which means low interest rates *inflate* the stock market. The stock market will become dislocated if the bond market ever reverts to normal.


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## HaroldCrump (Jun 10, 2009)

My Own Advisor said:


> Horrible deal for investors.


I suspect many folks would inadvertently end up owning these "horrible" bonds via their pension funds, mutual funds, or whole life insurance plans.
Pension plans are a captive market for govt. bonds.


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## OnlyMyOpinion (Sep 1, 2013)

If rates are "wacky" now, is anyone's crystal ball telling them what the correct trajectory/rate is? 
Is it the ~60yrs from ~1900-1960 when they ranged from 2-5% (avg 3.3%)? Is it the ~20 yr climb from ~1960-1981 when they rose from 4% to 15%? Or is it the ~33yr decline from ~1981-2014 when they dropped from 15% to 2%? Should we give up on the pundits who keeping pushing meaningful increases into 'next year'?
View attachment 514


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