Canada Plans First U.S.-Dollar Global Bond in Decade (Update3)

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Canada Plans First U.S.-Dollar Global Bond in Decade (Update3)
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By Greg Quinn

Aug. 28 (Bloomberg) -- Canada plans to sell as much as $3 billion of U.S.-dollar bonds worldwide in “the near future,” the first such sale in more than a decade, to boost foreign- exchange reserves and support lending by the International Monetary Fund.

Finance Minister Jim Flaherty announced the sale on the department’s Web site today, without giving the amount to be sold. Department spokesman Jack Aubry said the sale would be “benchmark size,” worth as much as $3 billion.

“The global bond issue will prudently diversify the government’s sources of foreign currency financing,” the statement said. The government also uses swaps to fund its Exchange Fund Account where foreign currencies are held.

Selling foreign-currency bonds to build up reserves may be easier than a domestic sale followed by swapping the proceeds into U.S. dollars, said James Dutkiewicz, who manages $5 billion in fixed-income assets for CI Investments Inc. The supply of Canadian-dollar bonds is rising this year as the federal government runs a record budget deficit, he said.

“It makes sense to raise money in the U.S. and not saturate the Canadian market with another deal,” Dutkiewicz said in a telephone interview from Toronto.

Canada’s foreign-currency reserves were $45.5 billion on Aug. 23, according to government figures.

‘Reverse That Trend’

Canada’s supply of foreign-currency bonds “has generally declined rather sharply over the years,” said Eric Lascelles, chief economist and strategist at TD Securities Inc. in Toronto, a unit of Canada’s second-biggest bank. “This is just an opportunity to reverse that trend.”

Today’s move isn’t related to recent comments by central bank policy makers, who have voiced concern about the economic impact of Canadian dollar strength, Dutkiewicz and Lascelles said.

“The purpose of the issuance is not to prepare for currency intervention,” Lascelles said in a note to clients.

“I don’t think there’s much to read into that,” Dutkiewicz added. “Borrowing in U.S. dollars just makes it easier” to fund Canada’s IMF obligations.

Canada said April 1 it will boost funding to the IMF by $10 billion as part of global efforts to give additional funding for emergency assistance.

Bank of Canada Deputy Governor Timothy Lane said Aug. 25 that persistent strength in the country’s currency is an “important risk” to the economy, and policy makers have “flexibility” to implement further stimulus if it’s needed.

Canada’s dollar has gained 12 percent against its U.S. counterpart this year, sixth among 16 major currencies tracked by Bloomberg.

To contact the reporter on this story: Greg Quinn in Ottawa at gquinn1@bloomberg.net.