More RRBs, Please! Why Ottawa Should Issue More Inflation-Indexed Bonds

20 Pages Posted: 19 Oct 2012

Date Written: September 26, 2012

Abstract

Financial instruments indexed to the general price level are of great potential use to borrowers and lenders alike. But up until recently, they have been relatively scarce – in part because private borrowers dislike offering protection against inflation that they do not control. Since the early 1980s, several developed-country governments have begun issuing price-level-linked bonds, and these bonds now constitute a large share of some countries’ total debt issue. This study argues that Canada’s federal government, which began issuing real-return bonds (RRBs) in 1991, should issue more RRBs of more types than it currently plans to do. Issuing more RRBs would not only better satisfy existing demand from investors, it has the potential to spur the development of other price-indexed instruments. Experience elsewhere suggests that more federal RRBs could encourage other entities to issue price-indexed debt, and would let intermediaries provide such products as inflation-linked annuities, thus providing more Canadian savers with protection against intentional or accidental inflation.

Keywords: Financial Services, Monetary Policy, Canada, real-return bonds (RRBs), Bank of Canada

JEL Classification: G12, G18, E52, E58

Suggested Citation

Bergevin, Philippe and Robson, William B. P., More RRBs, Please! Why Ottawa Should Issue More Inflation-Indexed Bonds (September 26, 2012). C.D. Howe Institute Commentary No. 363, Available at SSRN: https://ssrn.com/abstract=2163691 or http://dx.doi.org/10.2139/ssrn.2163691

Philippe Bergevin (Contact Author)

C.D. Howe Institute ( email )

67 Yonge St., Suite 300
Toronto, Ontario M5E 1J8
Canada

William B. P. Robson

C.D. Howe Institute ( email )

67 Yonge Street
Suite 300
Toronto, Ontario M5E 1J8
Canada
416-865-1904 (Phone)
416-865-1866 (Fax)

HOME PAGE: http://www.cdhowe.org

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