Finance Minister Bill Morneau is considering ending sales of the federal government bond due to poor sales
The Canadian Savings Bond program is set to launch its 70th year of issuances – which may be the last.
A report from CBC indicates that Finance Minister Bill Morneau is seriously contemplating an end to the program in the next Federal Budget.
Originally introduced during the Second World War to help the federal government raise funds from individual Canadians, sales of the bonds have been plummeting since the late 1980s, when consumers were motivated by sky-high interest rates to snatch up the instrument.
It is considered as among the safest investment vehicles, because it is fully backed by the federal government and can be cashed in at any time. However, banks and other financial institutions now offer GICs, self-directed trading accounts, ETFs, and other products that easily outdo the rates of return that the bonds can offer.
The current environment of sub-1% bank rates has proven to be a poor climate for bond investment, making it hard to justify the $60-million bill the government has to foot each year to run the program. A KPMG report commissioned by the previous Harper administration, which is currently in Morneau’s possession, finds “no valid economic reasons to justify this program,” recommending “an orderly phasing out of the program.”
The main costs incurred by the Bank of Canada in administering the program include serving as the main point of contact for the thousands of Canadian bondholders and the national advertising campaign that promotes it, which costs millions.
In an interview, University of Ottawa economist Serge Coulombe said that when the savings bonds were initially offered in 1946, financing sovereign debt was much more difficult because international bond markets were not yet well developed. Obviously, times have changed since then.
"This is probably the most expensive loan tool for the government, and it can borrow on world capital markets with much lower costs," he said. "It's a program that was developed for another time, another world."
Related stories:
Canadian economy sagging, but investments soar
Foreign investors hungry for Canadian securities
A report from CBC indicates that Finance Minister Bill Morneau is seriously contemplating an end to the program in the next Federal Budget.
Originally introduced during the Second World War to help the federal government raise funds from individual Canadians, sales of the bonds have been plummeting since the late 1980s, when consumers were motivated by sky-high interest rates to snatch up the instrument.
It is considered as among the safest investment vehicles, because it is fully backed by the federal government and can be cashed in at any time. However, banks and other financial institutions now offer GICs, self-directed trading accounts, ETFs, and other products that easily outdo the rates of return that the bonds can offer.
The current environment of sub-1% bank rates has proven to be a poor climate for bond investment, making it hard to justify the $60-million bill the government has to foot each year to run the program. A KPMG report commissioned by the previous Harper administration, which is currently in Morneau’s possession, finds “no valid economic reasons to justify this program,” recommending “an orderly phasing out of the program.”
The main costs incurred by the Bank of Canada in administering the program include serving as the main point of contact for the thousands of Canadian bondholders and the national advertising campaign that promotes it, which costs millions.
In an interview, University of Ottawa economist Serge Coulombe said that when the savings bonds were initially offered in 1946, financing sovereign debt was much more difficult because international bond markets were not yet well developed. Obviously, times have changed since then.
"This is probably the most expensive loan tool for the government, and it can borrow on world capital markets with much lower costs," he said. "It's a program that was developed for another time, another world."
Related stories:
Canadian economy sagging, but investments soar
Foreign investors hungry for Canadian securities
