Delayed budget and record debt issuance raise transparency concerns for fiscal 2025–26 plans
Canada’s federal debt issuance is expected to reach $628bn in 2025–26, exceeding the $593bn peak during the 2020–21 fiscal year, as reported by Reuters.
This estimate, which factors in the government’s December financial outlook, additional campaign spending, and maturing debt, has drawn attention from analysts monitoring market absorption risks and interest rate impacts.
According to Andrew Kelvin, head of Canadian and global rates strategy at TD Securities, “We do think that this will have an impact on Government of Canada bond yields.”
He projected total debt issuance could reach $645bn this year, assuming lower economic growth than forecast in the Liberal Party platform.
Kelvin also noted, “Whatever is going to be in the budget, the more time the market has to process it, the easier it is for the market to digest that supply.”
As per BNN Bloomberg, the 10-year Canadian yield has already risen more than 50 basis points since April, hitting 3.31 percent.
The yield curve has steepened significantly, with the 10-year yield trading 63 basis points above the 2-year rate—nearing the widest spread since November 2021.
While short-term rates remain anchored by the Bank of Canada’s rate-cutting cycle, the long end has come under pressure from growing fiscal concerns.
A delayed federal budget presentation—expected in the fall, despite the usual April timing—has raised transparency issues.
Prime Minister Mark Carney’s announcement that the budget will follow months after the general election has been met with market caution.
Joshua Grundleger, director of sovereigns at Fitch Ratings, stated, “It raises questions about transparency and contributes to greater economic and fiscal uncertainty.”
He added that markets need clarity on which platform commitments will be funded and their impact on debt, deficits, and taxation.
According to Scotiabank’s Derek Holt, “Markets need greater clarity sooner on debt issuance plans.”
In a client note, Holt stressed the importance of an earlier budget release, remarking, “If you’re going to do (the) fall, make it September.”
The surge in bond supply comes as deficit spending remains elevated and a large portion of pandemic-era debt begins to mature.
In addition, the government’s ongoing purchases of mortgage-related bonds to ease housing costs have further increased borrowing.
As reported by the Fraser Institute in February, Canada’s combined federal and provincial net debt (adjusted for inflation) is expected to reach $2.3tn in 2024–25—nearly double the $1.2tn recorded in 2007–08.
The report emphasized that debt accumulation was already significant before COVID-19, with nearly $600bn added between 2007/08 and 2019/20.
Debt servicing costs are also escalating. The Fraser Institute noted that combined interest payments on federal and provincial debt will cost each Canadian at least $1,930 in 2024–25.
This figure rises to $3,453 per person in Newfoundland and Labrador, the highest in the country. Ontario and Quebec follow closely with $2,085 and $2,415 respectively.
The combined federal-provincial debt-to-GDP ratio is projected to reach 75.2 percent nationwide in 2024–25, up from 53.2 percent in 2007–08.
Nova Scotia is expected to record the highest provincial ratio at 92.0 percent, while Alberta is the lowest at 42.2 percent.
These figures highlight regional differences in fiscal exposure that may shape budget planning and risk assessments across provinces.
Foreign appetite for Canadian debt remains strong, but analysts caution that such demand cannot be assumed indefinitely.
As Canada sends approximately 75 percent of its exports to the US, the country’s fiscal outlook remains vulnerable to ongoing global trade tensions, as highlighted by BNN Bloomberg.
For market participants navigating uncertain interest rate trajectories and fiscal planning timelines, the coming months may hinge on how quickly the federal government outlines its budget priorities and debt management strategies.
