Canada's public sector borrowers on issuance, inflation and international presence

Federal and provincial government funding officials struck a confident tone despite a complex macroeconomic backdrop. They addressed inflation and its implications for the national borrowing programme, judging the effects of higher oil prices to be broadly neutral for federal finances and the commitment to NATO’s 5% GDP defence target confirmed as baked into fiscal forecasts. On housing, they acknowledged sharply rising construction costs as a structural drag on affordability, though mortgage arrears data pointed to underlying borrower resilience. They went on to highlight the US-Canada tariff impasse, with the consensus view that friction was generating hesitation and delays rather than outright demand destruction, and that geographical diversification towards Europe and Asia Pacific was well underway. The panel also covered rating pressures, offshore issuance strategy, growing international appetite for Canadian debt, and the emergence of digital bond technology as a longer-term development for capital markets.

Canadian headline CPI climbed to 2.8% in April 2026 on the back of Middle East-driven energy price rises. Matthew Emde of Finance Canada struck a relaxed tone on the implications for federal debt issuance, arguing that higher oil prices produced offsetting effects — boosting royalty revenues on one side while dragging on the broader economy on the other. The net fiscal impact, he said, amounted to little more than noise against a C$566bn ($402bn) annual borrowing programme.

“Anything that small will just use treasury bills as the shock absorber. It’s not going to affect our bond programme at all,” he said.

On defence, Emde confirmed Canada’s commitment to hitting the NATO target of 5% of GDP by 2035, up from a historical range of 1%–1.4%, adding that the trajectory had already been absorbed into fiscal forecasts: “It’s already baked in essentially,” he said, “so it won’t have an effect on the fiscal situation.”

Dave Ayre, treasurer at CMHC, set out the pressures facing Canadian households as unemployment reached a six-month high of 6.9% in April. He pointed to construction costs having risen nearly 73% since 2019 — roughly three times the rate of general inflation — as a structural drag on housing affordability that predates and compounds the current cycle. Despite those headwinds, Ayre was cautiously encouraged by borrower data.

“We are seeing consumers hold up fairly well on the housing side,” he said. “Mortgage arrears rates are in the 0.24% range — still pretty low numbers.”

He flagged pockets of stress in towns reliant on particular industries hit hardest by job losses related to the United States-Mexico-Canada Agreement (USMCA), but characterised the national picture as one of resilience for now.

The US-Canada tariff impasse cast a long shadow over the discussion, with each panellist coming from a different vantage point on how their institution was navigating the uncertainty.

Anne Boulanger of EDC framed the environment as one of hesitation rather than an outright collapse in demand. Tariff friction was causing “supply line disruptions, delays in decision-making, potential pauses in investments, as the natural consequence of geographic proximity and deeply integrated economies,” she said.

EDC’s response has has been to help exporters build resilience and find alternative markets. Boulanger highlighted the agency’s Trade Impact Programme launched in 2025 to facilitate an additional C$5bn in trade over two years, She pointed to Europe and the Asia Pacific region as the two priority geographies, the former driven by near-term energy security needs and the latter by long-run population and commodities growth.

Bernard Asselin of Quebec gave the panel’s most pointed illustration of tariff absurdity. Quebec produces 90% of Canada’s aluminium, making it by far the most exposed province to sectoral tariffs. Asselin argued that US buyers seem to have little near-term alternative “because the US don’t have the capacity to produce more aluminium in the short term”. A C$2bn drop in exports to the US in 2025 has been partially offset by rapid diversification. Netherlands-bound exports rose sixfold and Poland’s increased by 1,500% year-on-year. “The impact is felt, but it’s nothing major,” he concluded.

Jason Lewis of British Columbia pushed back gently on the idea that trade disruption was only a negative, arguing that external pressure had accelerated initiatives the province had long intended to pursue. He sketched out a BC economy that is 75% services-driven despite its resource-rich image, and pointed to a pipeline of major projects, such as the expansion of the Port of Vancouver, the Trans Mountain pipeline, new liquid natural gas facilities in the north, and expanded hydro-electric transmission into underserved regions, as the foundations of a more resilient future. “The pressures we’re seeing on trade with the United States have actually pushed us to advance a lot of other initiatives,” he said. “British Columbia has a lot of resources in the ground, a lot of technology, a lot of people we can put to work. We’re excited about the future.”

On BC’s two credit rating downgrades this year, Lewis was candid about the drivers, which he said were elevated expenditures and rising debt metrics. He made the case for long-horizon investors to see through near-term noise. The province is now funding across six markets, including a recent and well-received sterling issuance, with Lewis emphasising discipline on deal sizing to maintain good investor relations. “As bond investors, you understand that the return isn’t going to come in three months or a year,” he said. “Investing in BC bonds is buying into a credit story that is for the future.”

Matthew Emde added a federal-level data point in support of the broader diversification story, noting that Canada’s non-US exports had risen around 50% in the past two years. “In the end it’s going to be a long-term benefit,” he said.

The final section of the discussion turned to funding markets, where the mood among the speakers was upbeat. Emde highlighted the Government of Canada’s C$3.5bn five year Global bond, priced in May at a record tight of 2bp over US Treasuries, as a high watermark for international demand.

Foreign ownership of the government’s bonds has risen to 38%, up from around 25% a decade ago, a trend Emde attributed to a gradual and structural shift rather than short-term safe-haven flows. “I don’t think you can pin it all on just the last couple of years,” he said, “but we’re definitely seeing increasing interest around the world and that’s going to continue.”

Dave Ayre noted a similar picture at CMHC, noting near-record European participation — approximately C$1.5bn in demand — in a deal priced the week before. It was the strongest European showing the agency has seen. He connected the trend to Canada’s improving global profile and the government’s push to advance large-scale national infrastructure. “I think the prime minister has been great at promoting a really unified approach,” he said. “The world is starting to notice — and that’s great for all of us as issuers.”

On the question of Quebec’s election in October, Asselin outlined a carefully positioned borrowing strategy. The province has completed roughly 55% of its reduced C$23.5bn programme in just two and a half months, having front-loaded issuance in anticipation of a pre-election blackout period. “Being ahead of schedule will give us flexibility going forward,” he said.

Anne Boulanger closed proceedings with an account of Project Samara — a joint initiative between EDC, the Bank of Canada, RBC, and TD that produced Canada’s first tokenised Canadian dollar bond. The C$100m short-dated issuance ran on dual digital ledger technology platforms, achieving near-instant settlement.

The technology worked, Boulanger said, but the path to broader adoption will be long. “It’s likely going to be slow in nature, just because of the operational complexity and the regulatory and legal frameworks that weren’t necessarily set up for digital issuance,” she said. For those interested in the details, the Bank of Canada has published a research paper on the experiment on its website.

Despite geopolitical and trade uncertainty, Canada’s major public sector entity (PSE) issuers look out across the capital markets with measured optimism. All four institutions were keen to remind markets that they manage predominantly global portfolios, meaning Canada-specific pressures represent only a fraction of total exposure. Their representatives on the panel identified long-term diversification, rigorous stress-testing, and a commitment to staying invested as cornerstones of their approach. They also highlighted the growing importance of recycling private market assets, rather than simply acquiring them, as a key strategic shift. Participants focused on OSFI’s proposed liquidity asset class for Canadian PSEs, welcoming it as meaningful recognition by regulators of the market’s maturity. Participants discussed offshore issuance strategies, where approaches diverged between expanding across multiple currencies, concentrating on large liquid Canadian dollar lines, and building offshore curves through a long-term commitment to issuing.

Despite the trade and geopolitical headwinds covered in the preceding panel, all four PSEs expressed confidence. “I’d start very bullish on Canada right now,” said John Sim of CPP Investments, highlighting Canada’s natural resource endowments, educated workforce, and a government keen to unlock long-neglected structural advantages.

With 88% of CPP Investments’ portfolio invested outside Canada, however, global uncertainty remains the dominant variable, which it manages through rigorous stress testing and an unwavering commitment to staying invested.

Ian Charest of La Caisse added a structural dimension: with 55% of its portfolio now in private markets, the institution’s focus has shifted beyond acquisition. “The ability to turn over and recycle your private portfolio is one of the key new focuses of the last few years,” he said.

Andrew Bastien of PSP Investments raised the question of the economic environment providing an argument for greater domestic investment. “We’ve been asking ourselves if we shouldn’t be investing more in Canada — if we have some kind of home field advantage,” he said.

Chris Weitzel of BCI added that all four institutions manage globally diversified portfolios. “A healthy appetite for Canada in the context of a globally diversifying approach is a perspective we share,” he said.

A further exchange centred on the Office of the Superintendent of Financial Institutions’ (OSFI) recent consultation proposing a new liquidity asset class for Canadian PSEs, which would cut Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio (NSFR) haircuts from 15% to 7%.

Sim called it “unambiguously positive,” arguing it would improve PSE paper’s competitiveness against government issuance, expand capacity, and deepen secondary liquidity.

Charest said La Caisse’s immediate priority would be to encourage equivalent treatment in Europe, where analogous language already covers triple-A rated covered bonds. “There’s clear precedent we can capitalise on,” he said.

Bastien noted that European banks were among the first to contact him when the news broke, with secondary trading levels quick to respond. “The news really disseminated on this side of the Atlantic — which surprised me, but just goes to show how positive it is.”

Weitzel welcomed the development while flagging that portability across jurisdictions could be a notable byproduct.

The closing discussion revealed meaningfully different funding strategies across the panel. Charest outlined La Caisse’s expansionary trajectory: 75% of bonds already outstanding in non-Canadian dollar currencies, with issuance set to grow as assets under management look likely to roughly double over the next decade. This includes plans to deepen its Australian dollar presence and potentially develop a sterling one.

Bastien confirmed PSP’s intention to return to sterling, where its 2025 inaugural benchmark drew the largest order book of any sterling SSA deal that year. “It’s one of the five core currencies we want to be regular in,” he said.

Weitzel explained BCI’s concentrated model, pointing out that with relatively modest funding requirements it has been focusing on Canadian dollars and issuing large liquid lines. “We aren’t afraid of size,” he said. “Investors are telling us they want large liquid benchmarks and we are accommodating that.”

BCI’s C$2bn deal, priced in January, validated the strategy, drawing C$5.2bn of orders from 77 investors.

Sim described CPP Investments’ approach as one of genuine commitment: at least two benchmark transactions per year in each of US and Australian dollars, and at least one in euros or sterling to ensure it is present and building liquidity. Australia demonstrates that approach works. “We said we’d be here every year in benchmark size. As we made good on that, we saw incredible take-up from both domestic and offshore investors,” he said.