Why would you not lock in debt at low rates, you ignorant twat?

[I am Groot]

So remember when bonehead Freeland, our know-nothing Finance minister was blithely reassuring us that low interest rate times were great times to borrow scads of money? Well, they didn't lock in the rates for the long term. Instead of issuing 30 year bonds they borrowed for... 3 years. That's right. Over 60% of the debt we took over during Covid was for 3 years or LESS. And now we've had to refinance it all at 5%, which will cost us $7-$10 billion in increased debt payments every year. That's in addition to the $70 billion in fresh debt Trudeau is running up for this year's spending.

The level of blinding incompetence this government continues to demonstrate day by day, issue by issue, is surely without comparison in Canadian history.

 

https://ottawacitizen.com/news/politics/canada-debt-short-term-bonds/wcm/014c7226-ae13-4e2b-b0f6-23d0c74fca04

[Aristides]

I don’t know if it’s that simple. Was there a market for 30 yr bonds that only returned 1%. Who would tie up their money for that long for such a low return? I wouldn’t.

Edited May 22, 2024 by Aristides

[CdnFox]

6 hours ago, Aristides said:

I don’t know if it’s that simple. Was there a market for 30 yr bonds that only returned 1%. Who would tie up their money for that long for such a low return? I wouldn’t.

You are not wrong but the solution to that is to sell the bonds at 1.5% or 2% instead. Then people who want to lock their money and will actually consider the higher rate bonds instead of the short-term bonds that only pay 1%

Mind you at the time both he and the bank were arguing that inflation was transitory and would go away quickly so there would be no changes to interest rates.

A much better question however is why borrow that much at all? You know interest rates are going up. You know every new dollar you borrow is going to be at the higher rate. Look at ways to borrow less. Instead he has pretty much increased spending. Which is part of the reason the rates are high to begin with. Scotiabank noted that if he cuts spending by 3% then it wouldn't have been necessary to raise interest rates to have the same effect on fighting inflation.

 

[Moonbox]

Almost no "people" buy 30 year bonds.  That market is mostly reserved for institutional investors (pension plans and the like).  At <1% coupon, the market for 30 year bonds would have been pretty limited.  I'm sure Canada did renegotiate as much as it could at rates like that, but I doubt there was much appetite for it from buyers.  Most fund managers at the time were doing everything they could to shorten their portfolio durations, anticipating rates would eventually strike upwards and hammer long-term bond markets.  

At higher rates where they might have sold, the trade-off would not have been there.  

When Conservative critics point to how Mexico's debt is generally much longer duration (as if they're financial geniuses or something), they ignore that 30 year gov't of Mexico bonds were paying ~8% or more in 2020.  There were fund managers out there willing to embrace the extra credit risk of Mexican t-bills compared to US or Canada, but that was mainly because it was impossible to find worthwhile fixed-income yields in the safer and more traditional markets. 

[Aristides]

In 2022 the yield on a Mexico 30 year bond was just over 10% compared to 3.6% for a Canadian bond. 

[Aristides]

2 hours ago, CdnFox said:

You are not wrong but the solution to that is to sell the bonds at 1.5% or 2% instead. Then people who want to lock their money and will actually consider the higher rate bonds instead of the short-term bonds that only pay 1%

Mind you at the time both he and the bank were arguing that inflation was transitory and would go away quickly so there would be no changes to interest rates.

A much better question however is why borrow that much at all? You know interest rates are going up. You know every new dollar you borrow is going to be at the higher rate. Look at ways to borrow less. Instead he has pretty much increased spending. Which is part of the reason the rates are high to begin with. Scotiabank noted that if he cuts spending by 3% then it wouldn't have been necessary to raise interest rates to have the same effect on fighting inflation.

 

I'm certainly not making excuses for this government's fiscal policies but the idea that they could be selling 30 year bonds at even 1.5 or 2% is very simplistic. I doubt rates will ever be as low as they were pre covid and I think most other investors would agree. If Mexican 30 yr bonds are yielding 10% they must be selling at a huge discount. 

[CdnFox]

19 minutes ago, Aristides said:

I'm certainly not making excuses for this government's fiscal policies but the idea that they could be selling 30 year bonds at even 1.5 or 2% is very simplistic. I doubt rates will ever be as low as they were pre covid and I think most other investors would agree. If Mexican 30 yr bonds are yielding 10% they must be selling at a huge discount. 

They're not going to get thirty year but theyd have done a lot better than the short term they did. 

And if they coudln't then they shoudln't have been borrowing it. That debt is going to be crippling. 

And the fact that they will never be as low as they were pre-covid is an excellent reason to try and make them attractive at a longer term than than to wait till interest rates went up.

At the end of the day it's easy to say here and say oh you can't oh you can't but the fact is what they did was crippling. So if they felt they couldn't do that they needed to do something else and they didn't.

And it would appear that you are indeed making excuses for their fiscal policies by saying that they couldn't have done anything different. They could have done much different. I am certain they could have gotten longer term for the money, I'm certain they could have borrowed less money,

Let's put it this way, what would you have done to secure the amount of money borrowed at a much lower interest rate or preferred conditions? If you are not defending their policies then presumably you have some other idea in mind that would have been a preferred choice.

[Aristides]

24 minutes ago, CdnFox said:

They're not going to get thirty year but theyd have done a lot better than the short term they did. 

And if they coudln't then they shoudln't have been borrowing it. That debt is going to be crippling. 

And the fact that they will never be as low as they were pre-covid is an excellent reason to try and make them attractive at a longer term than than to wait till interest rates went up.

At the end of the day it's easy to say here and say oh you can't oh you can't but the fact is what they did was crippling. So if they felt they couldn't do that they needed to do something else and they didn't.

And it would appear that you are indeed making excuses for their fiscal policies by saying that they couldn't have done anything different. They could have done much different. I am certain they could have gotten longer term for the money, I'm certain they could have borrowed less money,

Let's put it this way, what would you have done to secure the amount of money borrowed at a much lower interest rate or preferred conditions? If you are not defending their policies then presumably you have some other idea in mind that would have been a preferred choice.

I'm not making excuses for anything, I'm just saying there would have been little appetite for long term debt at low interest rates. Before interest rates went up I was buying 1 yr GIC's because I didn't think the slightly better rate for tying up my money longer was worth the risk. I have bought the odd bond that is due to mature this year  because of how much they have been discounted and the and tax advantages.

[CdnFox]

27 minutes ago, Aristides said:

I'm not making excuses for anything, I'm just saying there would have been little appetite for long term debt at low interest rates. Before interest rates went up I was buying 1 yr GIC's because I didn't think the slightly better rate for tying up my money longer was worth the risk. I have bought the odd bond that is due to mature this year  because of how much they have been discounted and the and tax advantages.

So what would you have done differently?  Or are you saying that they're simply was no possible way to address this other than the way they did and the liberals were forced into this situation by circumstance

[Aristides]

38 minutes ago, CdnFox said:

So what would you have done differently?  Or are you saying that they're simply was no possible way to address this other than the way they did and the liberals were forced into this situation by circumstance

Borrow less. They are still piling on debt even though the Covid emergency is over. They are now borrowing money just to pay the interest on what they already owe. This cannot end well.

Edited May 23, 2024 by Aristides

[CdnFox]

15 minutes ago, Aristides said:

Borrow less. They are still piling on debt even though the Covid emergency is over. They are now borrowing money just to pay the interest on what they already owe. This cannot end well.

Well sure, that's the obvious answer and the correct one of course. But it just seems that there were other ways that they could have financed whatever they felt they needed to finance without risking short-term exposure when they knew interest rates would be going up. Just curious what vehicles you thought they might have been able to use.

[Aristides]

23 minutes ago, CdnFox said:

Well sure, that's the obvious answer and the correct one of course. But it just seems that there were other ways that they could have financed whatever they felt they needed to finance without risking short-term exposure when they knew interest rates would be going up. Just curious what vehicles you thought they might have been able to use.

What ways? This is just political gamesmanship on the part of the Conservatives. Either that or they really don't know much about bonds and yields. I hope it is just the former.

[Moonbox]

1 hour ago, CdnFox said:

But it just seems that there were other ways that they could have financed whatever they felt they needed to finance without risking short-term exposure when they knew interest rates would be going up.

Everyone knew the rates would be going up.  That's why nobody was going to buy 30 year t-bills issued in 2020 and 2021.  Every single one of those contracts is now deeply in the red (like easy double digits), and none of them will be made whole until they mature.  

The only buyers would have been institutional, heavily-regulated institutions with strict capital reserve requirements (think pension plans and insurance companies) who had no real choice in the matter.   

The real issue here, as has been discussed, is the glut of debt we took on and continue to grow.  That's how Justin Trudeau has dicked us.  The math nerds looking after bond financing almost certainly knew what they were doing, and did the best they could.  This stuff is really cut and dry, and very boring.  

 

Edited May 23, 2024 by Moonbox

[Michael Hardner]

32 minutes ago, Moonbox said:

.  The math nerds looking after bond financing almost certainly knew what they were doing, and did the best they could.  This stuff is really cut and dry, and very boring.  

 

So... let me understand this now...

Ignorant twats were not a factor 🤔...

Well that's just no fun is it?

[Aristides]

57 minutes ago, Moonbox said:

Everyone knew the rates would be going up.  That's why nobody was going to buy 30 year t-bills issued in 2020 and 2021.  Every single one of those contracts is now deeply in the red (like easy double digits), and none of them will be made whole until they mature.  

The only buyers would have been institutional, heavily-regulated institutions with strict capital reserve requirements (think pension plans and insurance companies) who had no real choice in the matter.   

The real issue here, as has been discussed, is the glut of debt we took on and continue to grow.  That's how Justin Trudeau has dicked us.  The math nerds looking after bond financing almost certainly knew what they were doing, and did the best they could.  This stuff is really cut and dry, and very boring.  

 

On the upside, you could buy one of these turkeys for a heavily discounted price and collect interest on the face value. But to do that, some sucker had to buy it at face value in the first place.

[CdnFox]

2 hours ago, Aristides said:

What ways? This is just political gamesmanship on the part of the Conservatives. Either that or they really don't know much about bonds and yields. I hope it is just the former.

Quantitative easing comes to mind. Essentially the misnamed 'printing money' method of creating more money that the bank holds the bonds to and you hoover it back with higher interest rates later. 

Selling 10 and 15 year bonds at higher rates instead of 30. etc.  Even if it was more expensive than the going rate at the time it's still better. 

Mortgaging some of the government building assets seems like it would have been better for that matter. You can sell the mortgages to the cmhc which is sort of similar to what harper did to free up capital for short term money problems like a downturn or covid.  They would have mortgaged at the lower rates and been fine.

I realized part of the problem is that they have borrowed so much money that it's hard for non-traditional ways to keep up with the insane amount. But it seems like they could have offset it a lot better than they did

 

 

 

47 minutes ago, Michael Hardner said:

So... let me understand this now...

Ignorant twats were not a factor 🤔...

Well that's just no fun is it?

LOL never miss an opportunity to run to the defense of your favorite party do you Mr Conservative 🙂

[CdnFox]

1 hour ago, Moonbox said:

Everyone knew the rates would be going up.  That's why nobody was going to buy 30 year t-bills issued in 2020 and 2021.  Every single one of those contracts is now deeply in the red (like easy double digits), and none of them will be made whole until they mature.  

The only buyers would have been institutional, heavily-regulated institutions with strict capital reserve requirements (think pension plans and insurance companies) who had no real choice in the matter.   

The real issue here, as has been discussed, is the glut of debt we took on and continue to grow.  That's how Justin Trudeau has dicked us.  The math nerds looking after bond financing almost certainly knew what they were doing, and did the best they could.  This stuff is really cut and dry, and very boring.  

 

They sure insisted that they weren't going up in 2020 and 2021 as well is I recall. They stated many times that interest rates would be stable, and inflation would be transitory. I think it was the end of 2021 when the BoC started to walk back the idea that it was transitory and that it might be a lot longer than they previously let on and interest rates might climb. in 2020 and early 2021 i seem to recall them saying interest rates might go up in 2023, before they had to walk that back in 2021. 

I suppose you could argue that Justin simply was lying and that certainly would have the ring of truth. And that the Bank of Canada provided incorrect information as well which also would have the ring of truth although it's less clear if that was a lie or simple incompetence.

One way or another it's still feels like if you knew that interest rates were going to be going up and you knew you required large amounts of money it would have been possible to find better ways to lock in at least some of that borrowing longer term if you actually gave a crap

[Moonbox]

1 hour ago, CdnFox said:

They sure insisted that they weren't going up in 2020 and 2021 as well is I recall.

Most economists and central bankers predicted rates staying rock bottom until late 2023. Whether it happened in 2022 or 2023 isn't material in the context of long-term government bonds.  A 2020 long-term government of Canada bond was a contract that would not only pay you in urine, but also punch you in the dick and guarantee you double-digit capital losses in the short/near term.  

I'm not going to get in anyone's way criticizing dear Justin for torching our public finances, but the idea that the government blew it by not re-organizing most of its debt to long-term, almost interest-free bonds is based on the fantasy of non-existent lenders prepared to throw their money away.