1
Managing the Federal Debt:
A Risk Analysis of Alternative Borrowing Strategies
Fazley K. Siddiq
Professor of Economics
School of Public Administration
Dalhousie University
6152 Coburg Road
Halifax, Nova Scotia
B3H 3J5
Tel: (902) 494-8802
Fax: (902) 494 -7023
E-Mail: Fazley.Siddiq@dal.ca
This paper represents work in progress:
Comments are most welcome, but please do not quote
May-June 2004
This paper has been prepared for presentation to the Annual Meetings of the Canadian Economics
Association (CEA) at Ryerson University, Toronto, ON, June 4 – June 6, 2004. The author gratefully
acknowledges the excellent research assistance provided by Mohammad Safa, but is solely responsible
for the contents of this paper and for any errors or shortcomings that remain.
2
Abstract
This paper analyzes the relative merit of alternative borrowing strategies in managing the
federal debt. In particular, the study goes beyond the notion of striking an arbitrary
balance between low financing costs and cost stability. It considers the risks associated
with reducing the more expensive but relatively more stable fixed-rate share of the debt
and increasing the lower cost but more volatile floating- rate share of the debt.
The investigation tends to suggest that the government’s debt management strategy of
relying very heavily on the fixed-rate share of the debt since 1997/98 has essentially been
one of mirroring the minimum risk combination. Despite the stated policy of maintaining
a balance between stability in debt service charges (i.e., low risk) and low borrowing
costs, the former has clearly dominated. A carefully designed debt management strategy
could lead to a significant reduction in debt service charges through a readjustment of the
maturity structure and composition of the debt without taking undue risks.
1.0. Introduction
The Department of Finance (2003) announced in the February 2003 budget that the target
for the fixed-rate share of the debt would be reduced from two-thirds to 60 percent over
the next five years. The budget also made it clear that this would allow the size of the
Treasury bill program to be increased quite substantially from its current level of less
than 20 percent of all interest-bearing debt.
Such a strategy is a continuation of the government’s overly cautious approach, but must
still be acknowledged as a step in the right direction even though it was long overdue.
After registering surpluses in every budget since 1997/98 and with a debt-to-GDP ratio
that is rapidly declining, the government is in a relatively more secure position to reduce
the share of the fixed-rate two- to thirty-year issues of marketable bonds in favour of the
91-day Treasury bills. 1 Marketable bonds, by virtue of being longer term, are relatively
more stable and therefore less risky, but are generally associated with higher rates of
return making them relatively more expensive as debt instruments. The shorter duration
Treasury bills on the other hand display much more volatility with respect to interest rate
fluctuations, but generally offer yields that are significantly lower, making them less
expensive as debt instruments than marketable bonds.
Excessive reliance on issues of floating rate debt instruments such as Treasury bills
would reduce debt service payments in the short-run, but would be more risky, especially
in the event that interest rates were suddenly to spike upwards, which happened in
1981/82 and again eight years later.2
Debt issues consisting primarily of fixed rate
instruments such as marketable bonds would lower risk by providing greater stability to
debt service payments, but would likely be more costly. 3
1
The challenge for the
See Siddiq (2003) for details.
2
See Appendix Table 1 for details on a comparison of the yield structure between short-term and longterm securities.
3
For details on servicing the federal debt and the potential for lowering debt service charges, see Siddiq
(2000) and Siddiq and Mercer (2000).
2
government therefore is to find the right mix of issues of marketable bonds and Treasury
bills that will provide an appropriate balance between cost minimization and stability of
debt service payments while still maintaining liquidity in money markets.
Hence, the primary focus of this paper is to determine an optimum debt portfolio that will
take into account both the overall risk and the cost associated with that portfolio. One
way of doing this would be to conduct a sensitivity analysis of different combinations of
fixed and floating rate debt instruments that will minimize the cost corresponding to a
given level of risk. The alternative approach would be to determine the portfolio that
would minimize the risk corresponding to a given level of cost. In any event, it seems to
be more rational that the choice of the appropriate mix of debt instruments to issue be
determined through an analysis that considers both cost and risk rather than an arbitrary
determination of the share of each type of debt instrument. This mix, of course, will
change over time depending on the changes in the trends of both cost and risk and the
government’s capacity to absorb fluctuations in each of the key variables.
Section 2 reviews briefly the twin issues of cost and risk. It focuses on the determination
of portfolio cost and portfolio variance, and more specifically on the determination of the
mix (weights) that would minimize the risk associated with the choice of two or more
debt instruments. Section 3 discusses various fiscal transactions and debt ratios over
time. It also considers the distribution of interest-bearing debt and the associated interest
rates and debt service charges. Section 4 provides an analysis of the actual cost of
borrowing and compares this cost with alternative combinations of fixed- and floatingrate debt instruments and the minimum risk portfolio. Section 5 is a conclusion.
2.0. Portfolio Cost and Risk
2.1. The determination of the overall debt portfolio cost:
The determination of the overall cost of the debt portfolio requires the use of the weights
and costs of each of the debt instruments. It is calculated as follows:4
4
See Davis and Pointon (1984) for a more detailed discussion of portfolio cost and risk.
3
n
Overall cost of Debt Portfolio =
∑W C
i =1
i
i
………
(i)
where W is the weight of a particular debt instrument in the portfolio and C is the cost
associated with that particular debt instrument. The weight is normally measured in
fractions, with the sum of the weights of all the instruments in the mix totalling one,
while the interest cost (or yield) is expressed in percentage terms.
2.2. The determination of the overall debt portfolio risk:
The portfolio variance, which is expressed below, is used to represent the overall
portfolio risk. It is calculated as follows:5
 1 
Portfolio variance =    ∑ σ
 n 
2
n
i=1
where
σ
2
2
+
n

n (n −1 )
∑ Cov 
n
i=1

………
(ii)
is the variance of the return of each debt instrument while Cov is the
covariance between the debt instruments.
For a two-debt instrument portfolio, the portfolio variance is given by
Portfolio Variance =
W σ
2
1
2
1
+ W 22
σ
2
2
+ 2W1W 2 ρ
(12 )
where W1 and W2 are the weights of the two debt instruments,
σσ
2
ρ
is the correlation
1
coefficient between the return of the two debt instruments and
(12 )
… … (iii)
ρ σ σ
(12 )
1
2
is the
covariance between the instruments.
It follows by definition that the higher the portfolio variance, the greater is the risk
associated with holding that particular mix of debt instruments in the portfolio.
5
See Davis and Pointon (1984) for the actual derivation and further details.
4
2.3. The determination of t he minimum variance (risk) portfolio:
For a two-debt instrument portfolio, the weights corresponding to the minimum (or
optimum) variance portfolio are calculated as follows:
W1 =
ρ σ σ
σ + σ − 2ρ σ σ
σ
2
2
−
2
2
1
2
(12 )
1
2
(12 )
1
………
(iv)
2
By definition, it also follows that
W
2
= 1 − W1 … … …
(v)
where W1 and W2 as before are the assigned weights of the two instruments.
The calculated weights of the two debt instruments in the portfolio from Equations (iv)
and (v) above will essentially ensure that the overall portfolio risk is being kept at some
minimum level. This will help to provide a useful guideline in determining the mix of
the two debt instruments for an overall strategy that is risk averse. Variations of this mix
that result in a lower cost as me asured by Equation (i) will correspond to a higher
portfolio risk and vice-versa.
If one were to focus on the market debt, which is really the relevant base for determining
the appropriate mix of fixed versus floating debt instruments in the debt portfolio, the
choice then becomes one of determining the respective shares of marketable bonds and
Treasury bills to hold. Since these two instruments account for nearly all of the market
debt, 6 the choice is essentially one that would have to determine the optimum amounts of
each of these debt instruments to hold.
6
Excluded here are public sector pensions and certain other miscellaneous non-market debt accounts,
which, by definition, are not part of market debt.
5
3.0. Background
It seems to be both necessary and relevant to provide some pertinent background
information before formally conducting the risk analysis. This would provide a clearer
perspective on why such an analysis is important.
Table 1 provides a record of key fiscal transactions between 1985/86 and 2002/03. What
is notable in this table is that after recording many years of deficits, 1997/98 proved to be
a turning point in that a surplus was recorded. This was the first in a string of surpluses
that is yet to be broken. Despite the likelihood of an increase in federal transfers to the
provinces to partially offset the rising costs of health care, it is unlikely that this alone
will result in a budgetary deficit given that the economy continues to perform well.
As Table 2 shows, this favourable budgetary balance together with a growing economy
meant that the debt-to-GDP ratio fell from 73.9 percent in 1995/96 to 48 percent in
2002/03. Given the fiscal priorities of the government and recent economic trends, it is
very likely that the debt-to-GDP ratio will continue to fall to a level that is below 30
percent over the next ten years, a level not seen since the 1970s. This is consistent with
the projection made in the 2004 federal budget. Table 2 also provides data based on
various definitions of government indebtedness7 and the ratios of debt service charges to
GDP and federal spending, both of which continue to decline.
Table 3 provides the relative distribution of interest-bearing debt issues by debt
instruments over time. It is clear that marketable bonds dominate as the preferred debt
7
Measures of government indebtedness can be expressed in a variety of forms. For example, the interestbearing debt of the federal government is the sum of the unmatured debt and borrowings from pension
plans (including public sector pensions and CPP) and certain other accounts. In FY 2002/03 this amounted
to $620.8 billion or approximately 52.7 percent of GDP. A second definition of debt is gross debt, which is
the total amount the government owes and which consists of both market debt in the form of outstanding
bonds and bills, and internal debt owed mainly to the public sector pension fund. The gross debt (totaling
$700.1 billion or 59.5 percent of GDP in FY 2002/03) can also be defined as the sum of the total interestbearing debt and certain current liabilities and allowances, including the outstanding principal and interest
on matured debt. A third definition of debt is net debt, which is the accumulated total of all past budgetary
deficits and surpluses since Confederation and is equal to gross debt minus the federal government’s
financial assets such as loans, investments and foreign exchange accounts. It is net debt that is usually
reported in the budget documents, which, as indicated in Table 2, was $564.8 or 48 percent of GDP in FY
2002/03.
6
instrument. These bonds accounted for 68.7 percent of market debt in 2002/03 leaving
Treasury bills a distant second at 23.7 percent, despite the 3.04 percent interest rate for
Treasury bills which was less than one-half the 6.26 percent average interest rate for
marketable bonds. These matters are discussed in more detail later in this paper.
Table 4 provides further details of the interest-bearing debt and debt service charges.
One interesting feature that emerges out of this table is that public sector pensions, which
accounted for 21.7 percent of the outstanding debt in 2002/03 required 31.5 percent of all
debt service charges to service. A discussion of this unusual situation is beyond the
scope of this paper, but it does beg some sort of response from the government with
respect to how public sector pensions are managed.
It may therefore be worth
considering a gradual reduction of such expensive non-market debt with an increase in
the cheaper varieties of market debt notably Treasury bills.
The discussion of the summary statistics in Tables 1 through 4 provides essential
background information for effective decision- making. It is useful from an intuitive
perspective in that it provides a relevant context for the risk analysis that follows.
As already mentioned, the primary focus of this study is to determine an optimum debt
portfolio that will take into account both the overall risk and the cost associated with that
portfolio. Since well over 90 percent of all market debt has traditionally been held in the
form of either marketable bonds of varying duration or Treasury bills, the focus of the
risk analysis should primarily be on these two types of market debt. The empirical
analysis that follows will therefore deal with the special case of the two-debt instrument
portfolio.
4.0.
Risk Analysis:
Table 5 provides the approximate weighted cost of borrowing for marketable bonds and
Treasury bills from 1994/95 to the current period. 8 Since most of the debt issues are in
8
It is approximate because the rate used for marketable bonds is the ten-year bond rate. Issues of
marketable bonds range from two to thirty years, accompanied by the usual variation in interest rates. As
7
the form of marketable bonds, the actual cost of borrowing resembles a mix that is
dominated by marketable bonds.
The weighted average cost of borrowing (WACB)
column corresponds to Equation (i) above and shows the implied cost of borrowing over
nearly a decade dating back to 1994/95. 9 It is clear from the table that despite the rapidly
declining yield rate for Treasury bills, the impact on WACB was relatively slight due to
the dominance of the relatively more expensive marketable bonds in the mix. Although
the rate for Treasury bills has fluctuated quite significantly over the years, it has almost
always remained below that of marketable bonds for more than a generation. 10 In recent
years, this gap has widened to the point where marketable bonds are characterized by a
yield rate that is sometimes twice that of Treasury bills (see Appendix Table 1). Such a
gap begs the question as to what might be an optimum mix that would simultaneously
consider the dual priorities of risk and cost.
A logical next step is one where the mix of the two instruments corresponding to some
minimum level of risk is calculated. This is done in Table 6 which gives the weights for
marketable bonds and Treasury bills corresponding to the minimum risk portfolio given
in Equations (iv) and (v). These weights were calculated using the average monthly rates
for each of the two instruments over the preceding ten years. 11 The weights therefore are
based on predictions that correspond to minimum portfolio risk. A relatively higher
variance in the rates of one instrument by definition would lead to a low or negative
weight for that instrument. This is precisely what happens in the case of Treasury bills
for the 1990s in view of the high relative volatility in its yield for much of the 1980s. A
reduction in this volatility in the 1990s and beyond resulted in predicted weights that are
well, the reported yields in the table are for the current year only. The actual debt service cost would
depend on the rates prevalent at the time each portion of the debt was issued.
9
For marketable bonds, the rates indicated in Table 5 are for the current year only. Since these bonds
typically vary from two to thirty years, the actual cost for each year, which would have to consider the rates
in effect when the bonds were issued, will be different from those specified in the table.
10
To facilitate a comparison of the yield structure over time, the rates of return of short -term and long-term
securities dating back to 1969/70 is given in Appendix Table 1.
11
The number of observations used in the calculation of each weight was therefore 120. The ten-year
bond rate was used as the yield rate for marketable bonds.
8
positive and usually more than 0.3. This suggests that even with the use of the minimum
risk criteria, the relative share of Treasury bills should have been considerably more than
has been issued in recent years.
The predicted cost column in Table 6 gives the cost of borrowing using the predicted
weights described above. These weights are based on a forecast of the rates for the
preceding ten years and correspond to the minimum risk portfolio given in Equations (iv)
and (v). This table provides the weights of 10+ years marketable bonds and 91-day
Treasury bills on the basis of the minimum volatility portfolio and the predicted return of
the same portfolio.
The fact that the predicted cost is only slightly less than the actual cost in most years
provides an indication of the relatively conservative stance followed by the government
in issuing debt instruments. This is all the more notable in view of the rapidly declining
debt-to-GDP ratio and the much- improved overall fiscal position in recent years (see
Tables 1 and 2).
Appendix Table 2 is similar in structure to Table 6 in that it provides the weights of
marketable bonds and Treasury bills on the basis of the minimum volatility portfolio and
the predicted return of the same portfolio. The only difference is that it has been
calculated by taking the average rate of bonds of four different types: 1-3 years, 3-5
years, 5-10 years and 10+ years. For Treasury bills, the data was obtained as for Table 6
from the monthly returns for 91-day Treasury bills. The weights for the two instruments
were calculated as before by using the average monthly rates over the preceding ten
years. As expected, using the average rate of bonds of four different types, which
resulted in a lower average duration, gives a predicted cost series that is slightly less than
that in Table 6. It does not, however, alter the basic conclusion that the government’s
debt management strategy has been rather conservative.
Table 7 presents a sensitivity analysis of the weighted average cost of borrowing using
various combinations of marketable bonds and Treasury bills. Two clear trends emerge.
9
First, a comparison of cost shows that the actual cost of borrowing in recent years (Table
5) is only slightly above the minimum risk or predicted cost (Table 6 and Appendix Table
2). Second, this actual cost series resembles closely a mix of bonds and bills that is very
heavily weighted in favour of bonds as shown in Table 7. This table also shows that had
the mix contained equal amounts of bonds and Treasury bills the cost would have been
significantly lower. Even a 60:40 split between bonds and bills, which is the stated
federal policy for the next several years, would have generated significant interest cost
savings during the past ten years.
Upon closer inspection of the Bank of Canada’s policy with respect to its issues of fixedversus floating- rate debt instruments, it seems to be quite apparent that this policy has not
followed a systematic pattern. The period since 1994/95 has been characterized by a
rapid decrease in the share of the government's issues of Treasury bills, despite the
relatively low rate of interest associated with such bills. This has occurred largely
because of the government's preference for fixed-rate bonds to constitute the majority
share of its gross debt portfolio (Department of Finance, 1999, p. 8, 12; 2002, p. 17). 12
The strategy of issuing public debt according to a fixed- floating ratio of two-thirds longterm and one-third short-term was somewhat perplexing in an environment where fixedrate long-term bonds carried with them a much higher rate of interest. The change to a
fixed share of 60 percent in the federal budget of 2003 to be achieved over a five - year
period was a cautious yet long overdue adjustment. Clearly, the government – by virtue
of its significantly improved fiscal position – is now able to withstand a slightly higher
level of risk such as that, for example, associated with issuing a higher proportion of the
lower-rate short-term Treasury bills.
Hermanutz and Poitras (2001) show that the fiscal rule with a target fixed:floating ratio of
2:1 or two-thirds in fixed debt holdings and one -third in floating is key in evaluating a
12
By March 2000, 69 percent of the federal market debt and 52.7 percent of the interest-bearing debt
(which includes borrowings from public sector pensions) were held in the form of marketable bonds. See
Appendix Table A.1 for details.
10
debt management strategy. 13 It is also critical in formulating optimal debt structures.14
As part of this fiscal rule, if the government adopts a plan that requires an annual
assesssment of the conversion potential of all its holdings, it could benefit by issuing
proportionately more short-term securities than the desired fixed:floating ratio if the yield
spread is high and if it can be predicted with a reasonable degree of accuracy that a
significant narrowing of this spread is not likely to occur in the forseeable future. 15 This
will not necessarily involve a mid -stream policy change in the fixed:floating ratio per se,
but simply a temporary deviation from the desired ratio. The issues of Treasury bills
would increase and its conversion to long term bonds would be delayed for as long as
conditions are favourable. A greater reliance on Treasury bills would also inject more
funds into the sagging money market where demand for such bills continues to be strong,
despite the low interest rates. This would also help mitigate the impact of shrinking
government debt on money market operations and overall market liquidity.
It is interesting to note that in 1994/95, the year the federal government registered a
deficit of $37.5 billion, Treasury bills accounted for 29.9 percent of all interest-bearing
debt and marketable bonds only 42.5 percent for a fixed:floating ratio of 1.4:1. That year
and the years immediately preceding it and following it were historically high deficit
years. Yet, the relatively higher risk Treasury bills were employed to a far greater extent
then than at the present time when the government’s fiscal position is more secure with
the annual budgetary balance recording surpluses year after year and with the debt-toGDP ratio declining rapidly. 16 Thus, stability in debt payme nts is being emphasized to a
13
As part of the government’s overall debt management strategy, the Department of Finance determines
the fiscal rule. It is administered by the Bank of Canada, serving in its capacity as the government’s agent
for the implementation of monetary policy.
14
Optimal debt structures are influenced not simply by the fiscal rule, but also by the objectives of the
government such as achieving a balanced budget, reducing the debt-to-GDP ratio to some desired level,
maintaining a stable rate of growth over the long-run and providing social services at some minimum level.
There is nothing in any of these criteria to contradict a fiscal rule that would rely on a flexible fixed/floating
ratio within a defined band as a vehicle for reducing debt service charges.
15
It is worth mentioning that much of FY 2003/04 was characterized by a soft US economy and declining
interest rates, which is an ideal environment for holding short-term securities.
11
far greater degree during a period when the government can afford to take the small risks
associated with possible fluctuations in interest rates. 17 This emphasis on the stability in
debt payments is perhaps most explicitly reflected in the government’s fiscal rule
between fixed and floating debt issues. As a result, the average maturity period on debt
has gone up dramatically in recent years. More generally, debt management strategy was
significantly more risk-prone in the mid-1990s when federal finances were in a
precarious situation and the government could hardly afford to take the risks associated
with short-term borrowing.
Treasury bills, despite the loss of the exclusive position they once held, remain the
preferred money market instrument. If its share in the money market is further reduced
because of the declining federal debt this preference could indeed shift to other money
market instruments. The decline in the share of Treasury bills in the money market ha s
already generated significant competition from non-governmental issues such as shortterm, private sector paper, futures contracts on bankers' acceptances, and forward rate
agreements (Boisvert and Harvey, 1998).
An increasing supply of Treasury bills
therefore would address this problem and would also increase turnover in the money
market thereby helping to achieve a high volume of trade without affecting the price
significantly. 18
16
Mattina and Delorme (1997) show that there is some evidence that a lower level of government
indebtedness reduces the risk premia. Goldstein and Woglom (1992) provide similar evidence in an earlier
study.
17
This relative security in the government’s fiscal position has also been echoed by John Manley, the
federal Minister of Finance until December 2003, when he stated that “… reducing our debt means that
Canada is less vulnerable to interest rate shocks sparked by events beyond our borders” (Department of
Finance, 2002). In this statement, he seems to be implying a clear awareness that interest rate shocks are
triggered by “events beyond our borders.”
18
There has been a fair amount of research on the relationship between the maturity composition of the
debt and the corresponding yield structure, but the results are inconclusive. Okun’s (1963) findings reveal
that there is little correlation between the maturity structure and interest rates. While Scott (1965) shows
that average maturity does indeed influence some of the variations in both the short- and long-term rates,
Modigliani and Sutch (1966, 1967) find that re-arranging the distribution of debt issues has only a slight
impact on the stucture of yields. More recent work in this area also provides mixed results. Benjamin
Friedman (1977, 1980), independently and with others (Agell, Persson and Friedman, 1992), demonstrates
that deliberate manipulation of the issues of each debt instrument will influence yields, but Wallace and
Warner (1996) show no relationship between the maturity period of the debt and returns. Park’s (1999)
findings are somewhat tentative in that bonds with all the same characterisitics except maturity are not
perfect substitutes and that maturity composition occasionally, but not necessarily always, helps to predict
12
5.0. Conclusion
This study has shown that the weighted average cost of borrowing based on the mix of
marketable bonds and Treasury bills issued by the government has generally been quite
close to the minimum risk portfolio. There is quite clearly the potential for a substitution
of the fixed-rate marketable bonds with floating-rate Treasury bills as demonstrated by
the sensitivity analysis in this study. The government seems to have recognized this
potential when it announced a reduction in the target share of fixed-rate bonds from twofuture returns. Curiously, Hejazi, Lai and Yang (2000) using monthly data to examine the determinants of
term premia implicit in the Canadian Treasury bill term structure of interest rates find that the conditional
variances of US macroeconomic variables – not Canadian macroeconomic variables – are important
determinants of Canadian term premia. Since interest rates are affected by monetary policy, a debt
manager should factor this in with the maturity period, especially if the expectations hypothesis holds.
In the case of the United States, at least, past research does not indicate, even in general terms the nature
and characterisitics of the relationship between the length of debt maturity and interest rates. For Canada,
using an extended version of the stochastic model of the federal budget and building on the model by
Boothe and Reid (1998) [see Hermanutz and Matier (2000)], Hermanutz and Poitras (2001) show the
amount of fiscal room can be increased – without undue risk to the budgetary surplus – by increasing the
amount of short -term debt. Their conclusion is fully consistent the present study. Indeed, at a time when
the federal debt is potentially on the threshold of a steady decline, both the relative share of each debt
instrument and the absolute demand for it could determine its interest rate and hence the cost of borrowing.
If, however, interest rates are not sensitive to the size of the debt, the implication is that interest rates are
determined by other considerations, possibly by events in the broader domestic and world markets. This
latter scenario seems to be more likely for a number of reasons.
First, results based on US data, for example, in studies by Friedman (1977, 1980), Roley (1982) and Park
(1999), are not totally relevant within a Canadian context simply because variations in the issues of a
particular type of debt could influence North American and even world rates because of the sheer
magnitude of the debt. The Canadian economy, by virtue of being less than one-tenth the size of the US
economy, is much less likely to have an impact on North American or world markets in comparison to the
United States. Thus, despite the still relatively high debt-to-GDP ratio, marginal adjustments in its maturity
structure are unlikely to have a perceptible impact on interest rates.
Second, it is important to note that the federal government is not the only Canadian institution in the market
for loanable funds although it is indeed the single biggest debtor. Provincial governments also routinely
engage in new borrowings and t he refinancing of existing debt, as do both public and private corporations.
Much of this debt is secured by issuing bonds and securities similar to federal bonds and securities.
Third, since Canadian institutions increasingly borrow internationally, uj st as foreign institutions are
borrowing in Canada, the market for both short- and long-term securities is sufficiently large that no single
borrower influences particular yields significantly through changes in its borrowing strategy. Thus, for a
small open economy like Canada, fluctuations in interest rates depend more on the broader international
macroeconomic events than on the patterns of domestic public borrowing. See Siddiq (2003) for further
details.
13
thirds to 60 percent in the budget delivered in February 2003. This study shows that
there is room to move further down this road of reducing the share of fixed-rates bonds.
The increase in the associated risk would be minimal, but the reduction in debt service
charges would be substantial given the difference in the interest rate spread between
bonds and bills. It would also revitalize the money market through increased turnover
and visibility of federal debt instruments.
14
Table 1
Fiscal Transactions, FY 1985/86 – 2002/03
(all figures are in billions of dollars)
Fiscal Year
Budgetary
Revenue
Federal
Spending
Program
Spending
Public Debt
Charges
Primary
Surplus
(Deficit)
Total
Surplus
(Deficit)
1985/86
1986/87
1987/88
1988/89
1989/90
1990/91
1991/92
1992/93
1993/94
1994/95
1995/96
1996/97
1997/98
1998/99
1999/2000
2000/01
2001/02
2002/03
76.9
85.9
97.6
104.1
113.7
119.4
122.0
120.4
123.9
130.8
140.3
149.9
160.9
165.6
176.1
194.1
183.7
190.2
111.5
116.7
125.4
132.8
142.6
151.4
156.4
161.4
162.4
167.4
170.3
158.6
158.7
162.8
162.9
174.0
176.6
183.3
86.1
90.0
96.5
99.7
103.8
108.8
115.2
122.6
122.3
123.2
120.9
111.3
115.6
119.5
119.5
130.1
137.0
146.0
25.4
26.7
29.0
33.2
38.8
42.6
41.2
38.8
40.1
44.2
49.4
47.3
43.1
43.3
43.4
43.9
39.7
37.3
(9.2)
(4.0)
1.2
4.4
9.9
10.6
6.8
(2.2)
1.6
7.6
19.4
38.6
45.2
46.2
56.6
64.1
46.7
44.3
(34.6)
(30.7)
(27.8)
(28.8)
(28.9)
(32.0)
(34.4)
(41.0)
(38.5)
(36.6)
(30.0)
(8.7)
2.1
2.9
13.2
20.2
7.0
7.0
Note:
Certain changes in the method of calculation were carried out in 2002/03 due to which the figures
in the Public Accounts of Canada for 2002/03 differ from previous years. Statistics based on the
new method are provided retroactively back to 1993/94 in the Public Accounts for 2002/03. The
remaining figures from 1985/86 to 1992/93 are based on the old calculation method.
Source: Receiver General for Canada (1986, 1987 … … 2003).
15
Table 2
Various Debt Ratios (1985/86 – 2002/03)
Fiscal
Year
Gross Federal
Debt
$ billions
Net Federal
Debt
$ billions
Interest Bearing Debt
$ billions
Gross Domestic
Product (GDP)
$billions
Debt Service
Charges (DSC)
$billions
Federal
Spending
$billions
Net Federal
Debt / GDP
%
DSC/GDP
%
DSC/Federal
Spending
%
1985/86
1986/87
1987/88
1988/89
1989/90
1990/91
1991/92
1992/93
1993/94
1994/95
1995/96
1996/97
1997/98
1998/99
1999/2000
2000/01
2001/02
2002/03
273.3
307.1
338.3
369.7
395.3
431.3
465.1
501.6
610.7
651.6
694. 6
711.9
713.4
717.7
717.3
715
704.3
700.1
242.6
273.3
301.1
329.9
358.8
390.8
425.2
468.2
533.0
571.2
602.7
612.3
610.9
609.5
596.6
576.3
570.9
564.8
253.4
285.0
313.9
345.1
370.1
406.5
440.2
477.0
549.7
585.6
622.3
636.7
631.2
631.9
635.1
628.0
622.9
620.8
493.4
521.2
573.5
623.8
665.3
680.4
689.1
706.4
735.6
781.7
816.1
847.7
891.9
925.0
1,005.4
1,093.3
1,108.5
1,177.5
25.4
26.7
29.0
33.2
38.8
42.6
41.2
38.8
40.1
44.2
49.4
47.3
43.1
43.3
43.4
43.9
39.7
37.3
111.5
116.7
125.4
132.8
142.6
151.4
156.4
161.4
162.4
167.4
170.3
158.6
158.7
162.8
162.9
174.0
176.6
183.3
49.2
52.4
52.5
52.9
53.9
57.4
61.7
66.3
72.5
73.1
73.9
72.2
68.5
65.9
59.3
52.7
51.5
48.0
5.1
5.1
5.1
5.3
5.8
6.3
6.0
5.5
5.5
5.7
6.1
5.6
4.8
4.7
4.3
4.0
3.6
3.2
22.8
22.9
23.1
25.0
27.2
28.1
26.3
24.0
24.7
26.4
29.0
29.8
27.2
26.6
26.6
25.2
22.5
20.3
Note:
Certain changes in the method of debt calculation were carried out in 2002/03 due to which the figures in the Public Accounts of Canada for
2002/03 differ from previous years. These changes include two new debt titles that were added to the “Other Accounts” category. These are
“Other Employee and Veteran Future Benefits” and “Obligation Related to Capital Lease.” Statistics based on the new method are provided
retroactively back to 1993/94 in the Public Accounts of Canada, 2002/03. The remaining figures from 1985/86 to 1992/93 are based on the old
calculation method. The GDP entries were collected from CANSIM II Series V498918. For each fiscal year (April 1 to March 31), the GDP
was calculated by adding the four relevant quarters that would constitute the fiscal year. This would vary slightly from the calendar year
calculations.
Sources:
Receiver General for Canada (1986, 1987… … 2003).
16
Table 3
The Relative Distribution of Interest-Bearing Debt Issues by
Debt Instruments over Time
(All figures are in percentages)
(Average interest rates for each debt instrument by year are given in brackets)
(1994/95 – 2002/03)
Debt Instruments
1994/95
1995/96
Marketable Bonds
42.5
(8.58)
44.7
(8.39)
49.1
(8.01)
52.0
(7.75)
53.0
(7.51)
1999/20
00
52.7
(7.21)
Treasury Bills
29.9
(7.60)
28.3
(5.89)
22.5
(3.68)
18.9
(4.41)
16.3
(4.94)
Canada Savings Bonds
5.5
(5.75)
5.2
(6.58)
5.4
(6.75)
5.0
(3.61)
Bonds for CPP
0.6
(10.21)
0.6
(10.21)
0.6
(10.21)
Canada Bills
1.7
(6.16)
1.2
(5.20)
Canada/Euro Notes
0.0
(N/A)
Total (market debt)
Public Sector Pensions
Other Accounts
Grand Total
1996/97 1997/98
1998/99
2000/01 2001/02
2002/03
53.6
(6.98)
53.7
(6.61)
52.1
(6.26)
16.7
(5.31)
15.1
(5.31)
16.1
(2.64)
18.0
(3.04)
4.6
(4.28)
4.4
(5.13)
4.4
(5.42)
4.1
(3.23)
3.9
(3.43)
0.6
(10.22)
0.6
(9.39)
0.6
(10.04)
0.6
(10.10)
0.6
(10.16)
0.5
(10.14)
1.4
(5.37)
1.6
(5.49)
1.7
(4.81)
1.0
(5.87)
1.2
(5.10)
0.6
(1.75)
0.5
(1.12)
0.0
(N/A)
0.4
(6.12)
0.5
(5.87)
1.0
(4.70)
0.9
(4.95)
0.9
(4.15)
0.8
(2.46)
0.8
(2.36)
80.2
(7.97)
80.0
(7.34)
79.4
(6.66)
78.5
(6.64)
77.4
(6.70)
76.3
(6.15)
75.8
(6.11)
75.9
(5.56)
75.8
(5.32)
18.9
(10.4)
19.0
(10.4)
19.0
(10.2)
19.7
(9.9)
20.6
(9.6)
21.5
(9.3)
21.9
(9.0)
21.7
(8.7)
21.7
(8.5)
0.9
1.0
1.6
1.7
2.0
2.2
2.3
2.4
2.5
100.0
100.0
100.0
100.0
100.0
100.0
100
100
100
Notes: Canada Notes were introduced in FY 1996/97 and Euro Notes in 1997/98. It seems appropriate that
some of the debt figures given in Tables 3 and 4 ought to be clarified. Effective 2002/03, the Public
Accounts of Canada introduced a new reporting method that resulted in the interest-bearing debt showing
contradictory variations from one year to the next. For example, in the Public Accounts for 2002/03, the
total amount of debt for 2001/02 is given as $622.9 billion whereas in the 2001/02 accounts the total debt
for the same year (i.e., 2001/02) is given as $583.4 billion. The reason for this anomaly is that in the
“Other Accounts” category in 2002/03, two new debt titles were added that were not considered previously.
One of these is “Other Employee and Veteran Future Benefits.” The other is referred to as “Obligation
Related to Capital Lease.” To maintain consistency in the comparison of debt over time, these two new
titles were not included in Tables 3 and 4 of this paper, but are reported in Table 2.
Sources: Table 4 and Receiver General for Canada (Volumes I and II, 1995, 1996 … … 2003).
17
Table 4
Interest-Bearing Debt with Associated Interest Rates and
Debt Service Charges
(1994/95 – 2000/03)
Type of Bond/Security
Marketable Bonds
Treasury Bills
Canada Savings Bonds
Bonds for CPP
Canada Bills
Canada/Euro Notes
Total (market debt)
Public Sector Pensions
Other Accounts
Grand Total
94/95
95/96
96/97
233,553
(42.5%)
164,450
(29.9%)
30,460
(5.5%)
3,489
(0.6%)
9,046
(1.7%)
NA
262,214
(44.7%)
166,100
(28.3%)
30,460
(5.2%)
3,478
(0.6%)
6,986
(1.2%)
NA
440,998
(80.2)
104,438
(18.9%)
4,756
(0.9%)
550,192
(100%)
469,547
(20.0%)
111,518
(19.0%)
5,631
(1.0%)
586,387
(100%)
294,958
(49.1%)
135,400
(22.5%)
32,470
(5.4%)
3,468
(0.6%)
8,436
(1.4%)
2,121
(0.4%)
476,852
(79.4%)
114,204
(19.0%)
9,500
(1.6%)
600,557
(100%)
Debt Outstanding
$,000,000
(% of Total)
97/98
98/99
99/00
309,234
(52.0%)
112,300
(18.9%)
29,769
(5.0%)
3,456
(0.6%)
9,356
(1.6%)
3,176
(0.5%)
467,291
(78.5%)
117,456
(19.7%)
10,160
(1.7%)
594,907
(100%)
315,399
(53.0%)
96,950
(16.3%)
27,662
(4.6%)
4,063
(0.6%)
10,171
(1.7%)
6,181
(1.0%)
460,427
(77.4%)
122,407
(20.6%)
12,151
(2.0%)
594,985
(100%)
315,339
(52.7%)
99,850
(16.7%)
26,489
(4.4%)
3,552
(0.6%)
6,008
(1.0%)
5,168
(0.9%)
456,406
(76.3%)
128,346
(21.5%)
13,181
(2.2%)
597,933
(100%)
00/01
½
02/03
94/95
95/96
96/97
97/98
Debt Charges
$,000,000
(% of Total)
98/99
315,631
(53.6%)
88,700
(15.1%)
26,099
(4.4%)
3,473
(0.6%)
7,228
(1.2%)
5,275
(0.9%)
446,406
(75.8%)
129,185
(21.9%)
13,644
(2.3%)
589,232
(100%)
313,115
(53.7%)
94,093
(16.1%)
23,966
(4.1%)
3,391
(0.6%)
3,355
(0.6%)
4,405
(0.8%)
442,271
(75.9%)
126,921
(21.7%)
14,240
(2.4%)
583,432
(100%)
302,264
(52.1%)
104,411
(18.0%)
22,584
(3.9%)
3,371
(0.5%)
2,603
(0.5%)
4,519
(0.8%)
439,752
(75.8%)
125,708
(21.7%)
14,189
(2.5%)
579,649
(100%)
19,537
(46.5%)
9,343
(22.2%)
2,070
(4.9%)
359
(0.9%)
342
(0.8%)
NA
21,242
(46.5%)
11,118
(22.2%)
2,184
(4.9%)
379
(0.9%)
304
(0.8%)
NA
31,651
(75.3)
10,234
(24.3%)
161
(0.4%)
42,046
(100%)
35,227
(75.3)
10,973
(24.3%)
677
(0.4%)
46,877
(100%)
23,037
(51.2%)
7,021
(15.6%)
2,421
(5.4%)
367
(0.8%)
371
(0.8%)
106
(0.2%)
33,323
(74.1%)
11,137
(24.8%)
513
(1.1%)
44,973
(100%)
24,128
(55.3%)
4,314
(9.9%)
2,005
(4.6%)
361
(0.8%)
429
(1.0%)
141
(0.3%)
31,378
(72.0%)
11,705
(26.9%)
509
(1.2%)
43,592
(100%)
24,585
(55.8%)
4,266
(9.7%)
1,309
(3.0%)
391
(0.9%)
499
(1.1%)
191
(0.4%)
31,241
(70.9%)
12,160
(27.6%)
653
(1.5%)
44,054
(100%)
99/00
00/01
01/02
02/03
24,112
(53.2%)
4,376
(9.7%)
1,358
(3.0)
420
(0.9%)
340
(0.8%)
330
(0.7)
30,936
(68.3%)
13,290
(29.3%)
1,084
(2.4%)
45,310
(100%)
23,752
(51.1%)
4,576
(9.9%)
1,766
(3.8%)
365
(0.8%)
345
(0.7%)
273
(0.6%)
31,077
(66.9%)
13,790
(22.7%)
1,581
(3.4%)
46,448
(100%)
21,920
(53.8%)
3,474
(8.5%)
1,304
(3.2%)
348
(0.9%)
192
(0.4%)
163
(0.4%)
27,401
(67.2%)
12,250
(30.1%)
1,102
(2.7%)
40,753
(100%)
21,002
(54.8%)
2,834
(7.4%)
866
(2.3%)
343
(0.9%)
45
(0.1%)
115
(0.3%)
25,205
(65.8%)
12,065
(31.5%)
1,050
(2.7%)
38,320
(100%)
Notes: The ratio of debt charges for each category to the corresponding stock of debt (i.e., the effective interest rate) is different from the average interest rate (see Table 1) for each year, which is for the current year only (i.e., FY 1994/95 or 1995/96 …
… or 2002/03). The reason for this seeming discrepancy is because the debt service charges on each portion – within each of the categories – of the debt carries with it the rate of interest that existed at the time that portion of the debt was issued. The
Debt Outstanding and Gross Debt Charges columns are adjusted for amortization of premiums, discounts and commissions. The latter also includes servicing costs and the costs of issuing new borrowings. It is primarily for these reasons that the official
debt charges reported in the detailed public accounts and included in this table are greater than the more commonly reported interest only debt service charges. As well, starting with FY 1997/98, the adoption of new accounting procedures in 1998 have
further contributed to this discrepancy. Summary statistics of the Public Accounts are reported each year in Volume I while the details are included in Volume II.
Source: Receiver General for Canada (Volumes I and II, 1995, 1996 … … 2003).
Table 5
Weighted Average Cost of Borrowing (WACB)
(1994/95 to 2002/03)
Yield
(%)
Weight
Year
1994/95
1995/96
1996/97
1997/98
1998/99
1999/2000
2000/01
2001/02
2002/03
Market
Bond
T-Bill
Market
Bond
T-Bill
W*C
(Bond)
(%)
42.5
44.7
49.1
52
53
52.7
53.6
53.7
52.1
29.9
28.3
22.5
18.9
16.3
16.7
16.1
16.1
18
8.58
8.39
8.01
7.75
7.51
7.21
6.98
6.61
6.26
7.6
5.89
3.68
4.41
4.94
5.31
5.31
2.64
3.04
5.037
5.137
5.493
5.684
5.744
5.475
5.368
5.085
4.653
W*C
(T-Bill)
(%)
WACB
(%)
3.139
2.283
1.156
1.176
1.162
1.278
1.227
0.609
0.781
8.175
7.421
6.649
6.860
6.906
6.753
6.594
5.694
5.433
Table 6
Predicted Weights and Cost of Issuing Debt Instruments
Corresponding to the Minimum Volatility Portfolio
(1994/95 – 2004/05)
Predicted
Weight
Year
Marketable Bonds
Treasury
Bills
1994/95
1995/96
1996/97
1997/98
1998/99
1999/2000
2000/01
2001/02
2002/03
2003/04
2004/05
1.257368
1.31326
1.361761
1.42914
1.489915
1.385066
1.271041
0.524987
0.51829
0.605142
0.706362
-0.25737
-0.31326
-0.36176
-0.42914
-0.48992
-0.38507
-0.27104
0.475013
0.48171
0.394858
0.293638
Predicted (or
Minimum
Risk)
Cost (%)
10.16219
9.889264
9.69752
9.677492
9.38785
8.758816
8.288319
6.397187
5.952257
5.818193
5.806497
Correlation
Coefficient
0.7612
0.805331
0.839165
0.875787
0.884948
0.825182
0.809481
0.663388
0.556472
0.541811
0.622975
Note:
These weights were calculated using the average monthly rates for each
of the two instruments over the preceding ten years.
Sources:
CANSIM II Series V122487 for 10+ years marketable bonds monthly return.
CANSIM II Series V122484 for 91-day Treasury bill monthly return.
Table 7
WACB Using Various Combinations of Marketable Bonds and Treasury Bills
(1994/95 to 2002/03)
Year
1994/95
1995/96
1996/97
1997/98
1998/99
1999/2000
2000/01
2001/02
2002/03
Sources:
80:20
8.384
7.890
7.144
7.082
6.996
6.830
6.646
5.816
5.616
75:25
8.335
7.765
6.928
6.915
6.868
6.735
6.563
5.618
5.455
70:30
8.286
7.640
6.711
6.748
6.739
6.640
6.479
5.419
5.294
65:35
8.237
7.515
6.495
6.581
6.611
6.545
6.396
5.221
5.133
60:40
8.188
7.390
6.278
6.414
6.482
6.450
6.312
5.022
4.972
Bond : T-Bill
55:45
50:50
45:55
8.139
8.090
8.041
7.265
7.140
7.015
6.062
5.845
5.629
6.247
6.080
5.913
6.354
6.225
6.097
6.355
6.260
6.165
6.229
6.145
6.062
4.824
4.625
4.427
4.811
4.650
4.489
T-Bill: CANSIM II Series V122484 (91-day Treasury bill monthly return).
Bond: CANSIM II Series V122487 (10+ years marketable bond monthly return).
40:60
7.992
6.890
5.412
5.746
5.968
6.070
5.978
4.228
4.328
35:65
7.943
6.765
5.196
5.579
5.840
5.975
5.895
4.030
4.167
30:70
Appendix Table 1
The Yield Struc ture of
Short -term and Long-term Securities over Time
(1969/70 – 2002/03)
Fiscal Year
T-Bill
1-3 Year
Bond
3-5 Year
Bond
5-10 Year
Bond
10+ Year
Bond
1969/70
1970/71
1971/72
1972/73
1973/74
1974/75
1975/76
1976/77
1977/78
1978/79
1979/80
1980/81
1981/82
1982/83
1983/84
1984/ 85
1985/86
1986/87
1987/88
1988/89
1989/90
1990/91
1991/92
1992/93
1993/94
1994/95
1995/96
1996/97
1997/98
1998/99
1999/2000
2000/01
2001/02
2002/03
7.441
5.249
3.440
3.689
5.943
7.835
7.953
8.644
7.239
9.458
12.321
13.417
17.246
12.514
9.464
11.209
9.533
8.154
8.431
10.199
12.318
12.162
8.095
6.217
4.401
6.401
6.315
3.735
3.587
4.819
4.788
5.438
3.131
2.762
7.671
5.921
4.979
5.648
6.884
7.871
8.073
8.051
7.573
9.311
11.635
12.447
16.438
12.638
10.328
11.723
9.767
8.643
9.463
10.226
10.865
11.148
8.513
6.773
5.503
7.908
6.632
4.999
4.821
5.084
5.621
5.597
3.958
3.551
7.852
6.484
5.679
6.378
7.173
7.978
8.181
8.196
8.089
9.354
11.233
12.465
16.129
12.806
10.792
11.873
10.008
8.834
9.679
10.154
10.311
10.839
8.755
7.192
6.194
8.418
7.124
5.923
5.273
5.132
5.814
5.683
4.798
4.307
8.005
7.027
6.238
6.829
7.332
8.168
8.529
8.519
8.328
9.357
10.929
12.378
15.793
12.972
11.341
12.319
10.347
9.023
9.764
10.025
9.881
10.586
9.084
7.986
6.996
8.753
7.507
6.633
5.652
5.202
5.860
5.709
5.327
4.938
7.817
7.572
6.997
7.298
7.728
9.008
9.286
9.011
8.818
9.463
10.946
12.595
15.735
13.403
11.925
12.603
10.576
9.273
10.155
10.369
9.951
10.718
9.529
8.595
7.621
9.009
7.961
7.311
6.090
5.371
5.909
5.784
5.809
5.575
Note: The interest rates given in this table are the average of the monthly rates for each of the five
types of securities for each fiscal year.
Sources: CANSIM II SERIES’ V122484, V122558, V122485, V122486 and V122487.
Appendix Table 2
Predicted Weights and Cost of Issuing Debt Instruments
Corresponding to the Minimum Volatility Portfolio
(1994/95 – 2004/05)
Year
1994/95
1995/96
1996/97
1997/98
1998/99
1999/2000
2000/01
2001/02
2002/03
2003/04
2004/05
Weight
Mkt Bond
T-Bill
1.539577
-0.53958
1.58866
-0.58866
1.657834
-0.65783
1.764657
-0.76466
1.873622
-0.87362
1.76011
-0.76011
1.671657
-0.67166
0.74285
0.25715
0.693137
0.306863
0.728293
0.271707
0.738588
0.261412
Predicted
Cost
Correlation
Coefficient
9.802701
9.535884
9.313149
9.237216
8.940613
8.373348
8.05621
6.3886
5.891674
5.631355
5.443769
0.878936
0.895606
0.911092
0.931073
0.945265
0.920226
0.908053
0.799012
0.73548
0.749228
0.791998
Note:
These weights were calculated using the average monthly rates for each of the
two instruments over the preceding ten years.
Sources:
CANSIM II Series V122558 for 1-3 years marketable bonds monthly return.
CANSIM II Series V122485 for 3-5 years marketable bonds monthly return.
CANSIM II Series V122486 for 5-10 years marketable bonds monthly return.
CANSIM II Series V122487 for 10+ years marketable bonds monthly return.
CANSIM II Series V122484 for 91-day Treasury bill monthly return.
Bibliography
Agell, J., Persson, M. and B.M. Friedman (1992) Does Debt Management Matter (New
York: O xford University Press).
Boisvert, S. and N. Harvey (1998) “The Declining Supply of Treasury-Bills and the
Canadian Money Market,” Bank of Canada Review, Summer 1998, pp. 53 – 69.
Boothe, P. and B. Reid (1998), “Fiscal Prudence and Federal Budgeting in the Medium
Term,” in Fiscal Policy and Economic Growth, Kingston: John Deutche Institute
and Institute for Policy Analysis.
CANSIM (Canadian Socio-Economic Information Management System) II Series’
V122484, V122485, V122486, V122487 and V122558 University of Toronto,
Retrieved May 22, 2004 from the World Wide Web:
http://dc2.chass.utoronto.ca/cansim2/index.jsp
Davis, E.W. and J. Pointon (1984), Finance and the Firm (Oxford: Oxford University
Press).
Department of Finance (1999) Debt Management Strategy, 1999-2000 (Ottawa:
Department of Supply and Services).
Department of Finance (2002) Debt Management Report, 2001-2002 (Ottawa:
Department of Supply and Services).
Department of Finance (2003) Debt Management Strategy, 2003-2004 (Ottawa:
Public Works and Government Services Canada).
Federal Reserve Bank of St. Louis (2000) International Economic Trends, May 2000.
Friedman, B.M. (1977) “Financial Flow Variables and the Short-Run Determination of
Long-Term Interest Rates,” Journal of Political Economy, Vol. 85, pp. 661 – 689.
Friedman, B.M. (1980) “The Determination of Long-Term Interest Rates: Implications
for Fiscal and Monetary Policies,” Journal of Money, Credit and Banking, Vol.
12, pp. 331 – 352.
Goldstein, M. and G. Woglom (1992) “Market-Based Fiscal Discipline in Monetary
Unions: Evidence from the U.S. Municipal Bond Market” in M. Canzoneri, V.
Grilli and P. Masson (eds.) Establishing a Central Bank (Cambridge: Cambridge
University Press).
Hejazi, W., Lai, H. and X. Yang (2000) “The Expectations Hypothesis, Term Premia, and
the Canadian Term Structure of Interest Rates,” Canadian Journal of Economics,
Vol. 33 (1), pp. 133 – 148.
Hermanutz, D. and C. Matier (2000) “Modelling Federal Finances under Uncertainty,”
unpublished manuscript, Department of Finance, Ottawa, ON, April 2000.
Hermanutz, D. and F. Poitras (2001) “The Impact of the Federal Debt Structure
on Budgetary Outcomes,” paper presented to the 35 th Annual Meetings of the
Canadian Economics Association, McGill University, Montreal, PQ, May 31 –
June 3, 2001.
Modigliani, F. and R. Sutch (1966) “Innovations in Interest Rate Policy,” American
Economic Review , Vol. 56, pp. 178 – 197.
Modigliani, F. and R. Sutch (1967) “Debt Management and the Term Structure of Interest
Rates: An Empirical Analysis of Recent Experience,” Journal of Political
Economy, Vol. 75, pp. 569 – 589.
Mattina, T. and F. Delorme (1997) “The Impact of Fiscal Policy on the Risk Premium of
Government Long-Term Debt: Some Canadian Evidence,” Working Paper # 9701, (Ottawa: Department of Finance).
Okun, A. (1963) “Monetary Policy, Debt Management and Interest Rates: A Quantitative
Appraisal,” (ed.) Stabilisation Policies, (Englewood Cliffs, New Jersey: Prentice
Hall).
Park, C.W. (1999) “Maturity Structure of Public Debt and Expected Bond Returns,”
Journal of Banking and Finance, Vol. 23, pp. 1407 – 1435.
Receiver General for Canada (1986, 1987 … … 2003) Public Accounts of Canada,
Volumes I and II (Ottawa: Department of Public Works and Government
Services).
Roley, V.V. (1982) “The Effect of Federal Debt- Management Policy on Corporate Bond
and Equity Yields,” Quarterly Journal of Economics, Vol. 97, pp. 645 – 668.
Scott, R.H. (1965) “Liquidity and the Term Structure of Interest Rates,” Quarterly
Journal of Economics, Vol. 79, pp. 135 – 145.
Siddiq, F. (2000) “The Potential for Lowering Federal Debt Service Charges: An
Analysis of the Key Borrowing Instruments,” paper presented to the 34th Annual
Meetings of the Canadian Economics Association, University of British
Columbia, Vancouver, BC, June 1 – 4, 2000.
Siddiq, F. (2003) “Is the Term Structure of Interest Rates Related to Debt Magnitude?
Some Evidence from Recent Canadian Experience,” ACEA Papers and
Proceedings, Vol. 32, pp. 1 – 36.
Siddiq, F. and T. Mercer (2000) “Ottawa’s Millennial Challenge: Servicing the Federal
Debt at the Turn of the Century,” Canadian Business Economics, Vol. 8, No. 1,
February, pp. 27 – 41.
Wallace, M.S. and J.T. Warner (1996) “Do Excess Holding Period Returns Depend on
the Composition of Outstanding Federal Debt?” Journal of Money, Credit and
Banking, Vol. 28, pp. 132 – 139.