Canada issues 50 year debt

The government of Canada today issued $1.5 billion in debt with a 50-year maturity. The yield to maturity is 2.96%. For the duration these are amazingly low interest rates. If the Bank of Canada can actually keep the inflation target pinned at 2%, the real rate of interest is less than a percentage point.

Suffice to say, I think this is a prudent move by the government. I wonder when Canadian banks will come up with mortgage products that will let consumers lock in insured 30-year mortgages for 150 basis points above government rates. They do this in the USA, why not here?

I’m also curious to know how much debt the government can issue with these terms before the public market starts to vomit on this much debt. For every seller (the government), somebody out there must want to be long this debt. There is a financial argument about hedging against market volatility (typically bond prices will rise with a reduction in equity prices) and generating some higher semblance of income compared to 1%-yielding cash, but locking yourself in at 2.96% for 50 years? Unreal.

In a very abstract level, the taxpayers of Canada win in this scenario – as long as the pension fund that is buying the debt isn’t the one paying your future defined benefits.