Government of Canada

Pilot Bond Buyback Program -
Consultations With Market Participants

June 1998

Objective for Consultation Process

• To solicit feedback from market participants regarding the specific operational details for a pilot program of buying back less liquid outstanding bonds to maintain liquidity of the new issue program.
• Buybacks would be funded by either an exchange or subsequent issuance of current 2-, 5-, 10- and 30-year benchmark bonds – the intent is to have no major impact on the level of outstanding bonds at year-end.
• Key principles of the operation are transparency and a competitive process.

Context

• The government's intent to initiate a bond buy-back program on a pilot basis in 1998-99 was announced in March through the 1998-99 Debt Management Strategy.
• Market debt is projected to continue declining over the next two years.
• Liquidity, transparency and regularity are the principles underlying the maintenance of a well-functioning market, and the federal government is committed to maintaining these principles as the level of market debt declines.
• Steps have already been taken to enhance liquidity in the Government of Canada securities market: the pattern of issuance for Treasury bills and the 30-year bond has been changed, and the 3-year bond has been eliminated from the program.

Process

• A cross-Canada mailing of this document to a broad base of intermediaries and investors is taking place.
• Feedback is sought from market participants on preferences regarding the design of the pilot program for bond buy-backs and will be used as input in finalizing the operational details.
• Group meetings are scheduled in Toronto and Montreal with investment dealers and investors.
• A Bank of Canada Working Paper entitled "Buying Back Government Bonds: Mechanics and Other Considerations" is being published, and may be useful as background to the discussions.
• Details of the final program design will be announced to all market participants at the same time, via press release, and well in advance of the program implementation date.

Price / Cost

• The outstanding bonds would be repurchased at prevailing market prices.

Operational Points for Discussion

1. Method for buying back debt

Many options are possible, but the discussion should focus on options within the shaded section of the diagram – fully ad hoc operations are not being considered as their implementation would not allow for transparency of operations.

What would be the preferred approach to buyback operations from the perspective of market participants?

Once preferred method of repurchase established:

1. One or multiple bonds purchased at a time?

1. Bonds preferred – size, maturity?

1. Preferred size of the program – potential growth over time?

1. Cash or switches?

1. Extent of pre-announcement?

1. Frequency of operations?

1. Best timing for buyback operations?

1. Expectations for turnaround time to announce results of buy-backs?

1. Participation / access?