In order to inform future decision making and to support transparency and accountability, different aspects of the Government of Canada's treasury activities are reviewed periodically under the treasury evaluation program. The program's purpose is to obtain periodic external assessments of the frameworks and processes used in the management of wholesale and retail market debt, cash and reserves as well as the treasury activities of other entities under the authority of the Minister of Finance.
Reports on the findings of these evaluations and the Government's response to each evaluation are tabled with the House of Commons Standing Committee on Public Accounts by the Minister of Finance. Copies are also sent to the Auditor General of Canada. The reports are posted on the Department of Finance website.
|Debt Management Objectives||1992|
|Debt Structure—Fixed/Floating Mix||1992|
|Internal Review Process||1992|
|External Review Process||1992|
|Benchmarks and Performance Measures||1994|
|Foreign Currency Borrowing—Canada Bills Program||1994|
|Developing Well-Functioning Bond and Bill Markets||1994|
|Liability Portfolio Performance Measurement||1994|
|Retail Debt Program||1994|
|Guidelines for Dealing With Auction Difficulties||1995|
|Foreign Currency Borrowing—Standby Line of Credit and FRN||1995|
|Treasury Bill Program Design||1995|
|Real Return Bond Program||1998|
|Foreign Currency Borrowing Programs||1998|
|Initiatives to Support a Well-Functioning Wholesale Market||2001|
|Debt Structure Target/Modelling||2001|
|Reserves Management Framework||2002|
|Funds Management Governance Framework1||2004|
|Retail Debt Program1||2004|
|Borrowing Framework of Major Federal Government-Backed Entities1||2005|
|Receiver General Cash Management Program1||2006|
|Exchange Fund Account Evaluation1||2006|
|Risk Management Report1||2007|
|1 Available at www.fin.gc.ca.|
A well-functioning wholesale market in Government of Canada securities is important as it benefits the Government as a borrower as well as a wide range of market participants. For the Government as a debt issuer, a well-functioning market attracts investors and contributes to keeping funding costs low and stable over time. For market participants, a liquid and transparent secondary market in government debt provides risk-free assets for investment portfolios, a pricing benchmark for other debt issues and derivatives, and a primary tool for hedging interest rate risk. The following lists policy measures that have been taken to ensure a well-functioning Government of Canada securities market.
|Dropped the 3-year bond benchmark||1997|
|Moved from weekly to bi-weekly treasury bill auctions||1998|
|Introduced a cash-based bond buyback program||1999|
|Introduced standardized benchmarks (fixed maturities and increased size)||1999|
|Started regular cross-currency swap-based funding of foreign assets||1999|
|Introduced a switch-based bond buyback program||2001|
|Allowed the reconstitution of bonds beyond the size of the original amount issued||2001|
|Introduced the cash management bond buyback program||2001|
|Reduced targeted turnaround times for auctions and buyback operations||2001|
|Advanced the timing of treasury bill auctions from 12:30 p.m. to 10:30 a.m.||2004|
|Advanced the timing of bond auctions from 12:30 p.m. to 12:00 p.m.||2005|
|Reduced the timing between bond auctions and cash buybacks to 20 minutes||2005|
|Dropped one quarterly 2-year auction||2006|
|Announced the maintenance of benchmark targets through fungibility (common dates)||2006|
|Consolidated the borrowings of three Crown corporations||2007|
|Changed the maturity of the 5-year benchmark and dropped one quarterly 5-year auction||2007|
|Reintroduced the 3-year bond benchmark||2009|
asset-liability management: An investment decision-making framework that is used to concurrently manage a portfolio of assets and liabilities.
average term to maturity: The weighted average time until all securities in the debt portfolio mature.
benchmark bond: A bond that is considered by the market to be the standard against which all other bonds in that term area are evaluated against. It is typically a bond issued by a sovereign, since sovereign debt is usually the most creditworthy within a domestic market. Usually, it is the most liquid bond within each range of maturities.
budgetary deficit: The shortfall between government annual revenues and annual budgetary expenses.
buyback on a cash basis: The repurchase of bonds for cash. Used to maintain the size of bond auctions and new issuance.
buyback on a switch basis: The exchange of outstanding bonds for new bonds in the current building benchmark.
Canada bill: Promissory note denominated in US dollars, issued for terms of up to 270 days. Canada bills are issued for foreign exchange reserves funding purposes only.
Canada Investment Bond: A non-marketable fixed-term security instrument issued by the Government of Canada.
Canada note: Promissory note usually denominated in US dollars and available in book-entry form. Canada notes can be issued for terms of nine months or longer, and can be issued at a fixed or a floating rate. Canada notes are issued for foreign exchange reserves funding purposes only.
Canada Premium Bond: A non-marketable security instrument issued by the Government of Canada, which is redeemable once a year on the anniversary date or during the 30 days thereafter without penalty.
Canada Savings Bond: A non-marketable security instrument issued by the Government of Canada, which is redeemable on demand by the registered owner(s), and which, after the first three months, pays interest up to the end of the month prior to cashing.
cross-currency swap: An agreement that exchanges one type of obligation for another involving different currencies and the exchange of the principal amounts and interest payments.
duration: Measures the price sensitivity or exposure of a portfolio to fluctuations in interest rates.
electronic trading system: An electronic system that provides real-time information about securities and enables the user to execute financial trades.
Exchange Fund Account (EFA): The EFA is to aid in the control and protection of the external value of the Canadian dollar. Assets held in the EFA are managed to provide foreign currency liquidity to the Government and to promote orderly conditions for the Canadian dollar in the foreign exchange markets, if required.
financial source/requirement: Measures the difference between the cash inflows and outflows of the Government's Receiver General account. In the case of a financial requirement, it is the amount of new borrowing required from outside lenders to meet financing needs in any given year.
fixed-rate share of interest-bearing debt: Proportion of interest-bearing debt that does not mature or need to be repriced within one year (i.e. the inverse of the refixing share of interest-bearing debt).
foreign exchange reserves: The foreign currency assets (e.g. interest-earning bonds) held to support the value of the domestic currency. Canada's foreign exchange reserves are held in the Exchange Fund Account.
Government of Canada securities auction: A process used for selling Government of Canada debt securities (mostly marketable bonds and treasury bills) in which issues are sold by public tender to government securities distributors and approved clients.
government securities distributor: An investment dealer or bank that is authorized to bid at Government of Canada auctions and through which the Government distributes Government of Canada treasury bills and marketable bonds.
interest-bearing debt: Consists of unmatured debt, or market debt, and liabilities to internally held accounts such as federal employees' pension plans.
Large Value Transfer System: An electronic funds transfer system introduced in February 1999 and operated by the Canadian Payments Association. It facilitates the electronic transfer of Canadian-dollar payments across the country virtually instantaneously.
marketable bond: An interest-bearing certificate of indebtedness issued by the Government of Canada, and having the following characteristics: bought and sold on the open market; payable in Canadian or foreign currency; having a fixed date of maturity; interest payable either in coupon or registered form; face value guaranteed at maturity.
marketable debt: Market debt that is issued by the Government of Canada and sold via public tender or syndication. These issues can be traded between investors while outstanding.
money market: The market in which short-term capital is raised, invested and traded using financial instruments such as treasury bills, bankers' acceptances, commercial paper, and bonds maturing in one year or less.
non-market debt: Consists of the Government's internal debt, which is, for the most part, federal public sector pension liabilities and the Government's current liabilities (such as accounts payable, accrued liabilities, interest payments and payments of matured debt).
overnight rate; overnight financing rate; overnight money market rate; overnight lending rate: An interest rate at which participants with a temporary surplus or shortage of funds are able to lend or borrow until the next business day. It is the shortest term to maturity in the money market.
primary dealer: Member of the core group of government securities distributors that maintains a certain threshold of activity in the market for Government of Canada securities. The primary dealer classification can be attained in either treasury bills or marketable bonds, or both.
primary market: The market in which issues of securities are first offered to the public.
Real Return Bond (RRB): Government of Canada RRBs pay semi-annual interest based upon a real interest rate. Unlike standard fixed-coupon marketable bonds, interest payments on RRBs are adjusted for changes in the Consumer Price Index.
refixing share of GDP: Proportion of interest-bearing debt that matures or needs to be repriced within one year relative to nominal GDP for that year.
refixing share of interest-bearing debt: Proportion of interest-bearing debt that matures or needs to be repriced within one year (i.e. the inverse of the fixed-rate share of interest-bearing debt).
secondary market: A market where existing securities trade after they have been sold to the public in the primary market.
sovereign market: Market for the debt issued by a government.
treasury bill: Short-term obligation sold by public tender. Treasury bills, with terms to maturity of 3, 6 or 12 months, are currently auctioned on a bi-weekly basis.
yield curve: The conceptual or graphic representation of the term structure of interest rates. A "normal" yield curve is upward sloping, with short-term rates lower than long-term rates. An "inverted" yield curve is downward sloping, with short-term rates higher than long-term rates. A "flat" yield curve occurs when short-term rates are the same as long-term rates.
Department of Finance Canada
Financial Sector Policy Branch
Financial Markets Division
140 O'Connor St., 20th Floor, East Tower
Ottawa, Canada K1A 0G5
 Approved Orders in Council are available on the Privy Council Office website at www.pco-bcp.gc.ca/oic-ddc.asp?lang=eng&page=secretariats. The reference number for the 2009–10 OIC is 2009–0373.
 Government cash balances held at the Bank of Canada do not affect the federal debt (accumulated deficit).
 Activity under the Crown borrowing program does not affect the federal debt (accumulated deficit), since increased federal borrowing is matched by assets in the form of loans to the Crown corporations.
 Non-market liabilities include pensions, other employee and veteran future benefits and other liabilities.
 Unmatured debt is almost entirely composed of market debt but also includes amounts for capital leases.
 Modified duration measures the price sensitivity of a security or portfolio of fixed-income securities to changes in yields. Multiplying the modified duration of a security by the change in its yield gives the estimated percentage change in the price of the security. ATM is calculated by multiplying the remaining maturity on each instrument by its weight in the portfolio.
 The refixing share is simply a reformulation of the fixed-rate share reported in the past. The fixed-rate share has been replaced by the refixing share to facilitate comparison and to be consistent with the metrics used by other sovereigns.
 Non-fungible securities do not share the same maturity dates with outstanding bond issues. The benchmark size for bonds that are fungible with existing bonds is deemed attained once the total amount of outstanding bonds for that maturity exceeds the minimum benchmark size.
 The amount of new bonds issued through buybacks on a switch basis does not necessarily equal the amount of old bonds bought back through those operations because the exchange is not based on par value, but rather is on a duration-neutral equivalent basis.
 This does not include cash management bond buybacks, which are covered later in this document in the section entitled "Cash Management Bond Buyback Program."
 The Bank of Canada targets an average turnaround time of less than 3 minutes for auctions and less than 5 minutes for buyback operations. Maximum turnaround times are 5 minutes for auctions and 10 minutes for buyback operations.
 Note that on July 9, 2009 the Bank of Canada announced it would reduce its minimum nominal bond purchase amount at auction from 10 per cent to 5 per cent.
 Under the Terms of Participation in Auctions for Government Securities Distributors (http://www.bankofcanada.ca/en/markets/markets_auct.html), a primary dealer's bids, and bids from its customers, must total a minimum of 50 per cent of its auction limit or 50 per cent of its formula calculation, rounded upward to the nearest percentage point, whichever is lower. In addition, the minimum level of bidding must be at a reasonable price.
 Tails are not calculated for Real Return Bond auctions since successful bidders are allotted bonds at the single-price equivalent of the highest real yield (single-price auction type) of accepted competitive bids (see Section 6 of Standard Terms for Auctions of Government of Canada Real Return Bonds at www.bank-banque-canada.ca/en/auction/terms-rrb110110.pdf).
 The reintroduction of the 3-year nominal bond was announced in the 2009–10 Debt Management Strategy.
 A customer is a bidder on whose behalf a GSD has been directed to submit a competitive or non-competitive bid for a specified amount of securities at a specific price.
 The Details on Bond Buyback Operations were amended to allow the inclusion of Government of Canada bonds with terms to maturity of up to 18 months on those dates where the total amount of maturing bonds is greater than $5 billion (www.bankofcanada.ca/en/notices_fmd/2010/not170610_bondback.pdf).