Financial World: The Canadian Government Plans

The Canadian Government Plans

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The Canadian government plans to issue up to US$3 billion of bonds in its first global debt offering in more than 10 years, a finance department spokesman said Friday.
It will be of "benchmark size" and the issuance will happen "shortly", the spokesman, Jack Aubry, said. He wouldn't provide a clearer timeline. The launch and pricing are subject to market conditions, he said.
The government has mandated four lead managers for the offering. They are Bank of America Merrill Lynch, BNP Paribas, J.P. Morgan and RBC Capital Markets.
The government is issuing the bonds to supplement its foreign exchange reserves and for current and future lending by the International Monetary Fund.
"The global bond issue will diversify the government's sources of foreign currency financing," Aubry said.
News of the planned issuance promoted speculation the government was getting ready to intervene in the currency market, in the wake of concerns expressed by Bank of Canada officials about the strong Canadian dollar. The Bank hasn't intervened in foreign exchange markets since 1998.
Aubry wouldn't comment directly on the speculation, saying only that the department doesn't comment on the Canadian dollar's levels.
However, economists at TD Securities and Scotia Capital said issuing U.S.-dollar bonds for the purpose of intervening in the currency market would result in a stronger, not a weaker, Canadian dollar.
"If currency intervention is the desired goal, then swapping the proceeds back into Canadian dollars would be required and that would have the opposite effect of encouraging Canadian dollar appreciation," Scotia Capital economist Derek Holt wrote in a report.
Eric Lascelles, chief economist and rates strategist at TD Securities, said the government possibly wants to restart its foreign currency borrowing program because the outstanding supply of foreign currency bonds has fallen off sharply over the past year.
The government could also be trying to rebuild U.S.-dollar reserves after paying roughly US$7 billion to bail out General Motors Corp. and Chrysler LLC, Lascelles said in a report.
-Nirmala Menon, Dow Jones Newswires; 613-237-0668; nirmala.menon@dowjones.com
(Don Curren in Toronto contributed to this report.)