In the video, financial experts discuss the challenges and strategies surrounding debt management and borrowing amidst macroeconomic volatility, particularly in Canada. With factors such as the Middle East war and upcoming elections affecting market conditions, there is significant focus on the strategies used by provinces like Alberta and Manitoba in managing their fiscal responsibilities. The discussion includes perspectives on liquidity, borrowing programs during COVID-19, and adapting to changing yield curves.

Insights are shared on how different regions are handling their borrowing strategies. Alberta, for example, has a surplus attributed to rising energy prices but faces challenges due to immigration and employment issues. Manitoba explores the tension between maintaining healthy liquidity and the costs associated with public debt. Both provinces are also leveraging international markets to balance their borrowing needs and mitigate risks.

Main takeaways from the video:

Please remember to turn on the CC button to view the subtitles.

Key Vocabularies and Common Phrases:

1. volatility [ˌvɑː.ləˈtɪl.ə.ti] - (noun) - The degree of variation of a trading price series over time, usually measured by the standard deviation of returns. - Synonyms: (instability, unpredictability, fluctuation)

We're entering a period of macro volatility with a widening war in the Middle east and elections coming up in the US and in Canada.

2. liquidity [lɪˈkwɪd.ə.ti] - (noun) - The availability of liquid assets to a market or company, or how quickly assets can be converted into cash. - Synonyms: (cash flow, liquid assets, cash availability)

At that time, we've made the decision to increase our liquidity level.

3. mitigate [ˈmɪt.ɪˌɡeɪt] - (verb) - To make less severe, serious, or painful. - Synonyms: (alleviate, reduce, diminish)

it has actually helped us mitigate those costs of higher stock of debt because of the positive of carry that we've been able to to get on the higher liquidity levels.

4. surplus [ˈsɜːr.pləs] - (noun) - An amount of something left over when requirements have been met; an excess of production or supply. - Synonyms: (excess, remainder, overabundance)

And we've just released our first quarter. We now are projecting a surplus of 2.9 billion.

5. trajectory [trəˈdʒek.tər.i] - (noun) - The path followed by a projectile flying or an object moving under the action of given forces. - Synonyms: (path, course, route)

Do you foresee the same level of pre-funding for next year's deficit? Not, not us for sure because we were mostly front loaded for this year. I think next year we're only forecasted at about 5,5 billion. So. Yeah. What about you, Nicoletta? Do you, are there any macro challenges that, that can throw you off your borrowing program trajectory?

6. arbitrage [ˈɑːr.bɪ.trɑːʒ] - (noun) - The simultaneous purchase and sale of the same assets or commodities with the aim of profiting from the differences in their prices. - Synonyms: (trading, speculation, investment)

What we've also seen this year is that arbitrage on a number of currencies, international currencies that we traditionally borrow and there are all working for us that were all on site.

7. protocol [ˈproʊ.təˌkɔːl] - (noun) - The official procedure or system of rules governing affairs. - Synonyms: (procedure, system, code of conduct)

So what I think is really good about the Provi marketing can is that we do have things like a large issuer protocol where we do as informally, we'll talk to each other to manage that traffic.

8. benchmark [ˈbentʃ.mɑːrk] - (noun) - A standard or point of reference against which things may be compared or assessed. - Synonyms: (standard, yardstick, reference point)

Given the size of our borrowing program, we have not done benchmark aside from Australia which we did this year

9. deficit [ˈdef.ɪ.sɪt] - (noun) - The amount by which something, especially a sum of money, is too small. - Synonyms: (shortfall, deficiency, shortage)

Do you foresee the same level of pre-funding for next year's deficit?

10. collaboration [kəˌlæb.əˈreɪ.ʃən] - (noun) - The action of working with someone to produce or create something. - Synonyms: (cooperation, partnership, teamwork)

But we do, you know, there is collaboration.

Provincial Leaders on Canada’s Shifting Public Sector Dynamics

We're entering a period of macro volatility with a widening war in the Middle east and elections coming up in the US and in Canada. And many Canadian provinces stepped up borrowing during COVID and a lot of that debt is maturing in 2025. So that's a lot for borrowers to navigate. Can you each talk a little bit about what you're looking out for in terms of fiscal and funding challenges next year?

We'll start with you, Nicoletta. Thank you for having us here today. And thank you to Bloomberg for organizing this conference and to national bank for sponsoring. Thank you. Yeah. I mean, since the pandemic, we've been executing borrowing programs in an environment of heightened volatility. At that time, we've made the decision to increase our liquidity level. So we went from holding three months of cash on hand to six months of cash on hand. We've maintained that strategy and we keep a healthy liquidity, quidity levels. What that has allowed us to do is as just provided us some flexibility in terms of access to, to the market.

We've seen not we've. What we've seen when we increase the frequency in the domestic market is that it does have an impact on our spreads and our cost of borrowing. So having that flexibility and accessing the market when there is investor demand for our bonds does help with keeping our spreads stable or maybe even improving. And that has benefited that in terms of of public debt costs. I mean, there's a cost associated with, with liquidity. But what we've seen in the last couple of years with, with the yield curve is that it has actually helped us mitigate those costs of higher stock of debt because of the positive of carry that we've been able to to get on the higher liquidity levels. I think as we are starting to see a normalization of the yield curve, steeper yield curve, we need to try to balance the need for higher liquidity, which does help us manage our program in such an environment and balance that with the higher cost of the public debt costs.

Well, thank you. So maybe before I get started, we'll do a little bit of an economic backdrop on what's happened in Alberta. And we've just released our first quarter. We now are projecting a surplus of 2.9 billion. That's up from 500, 500 million earlier. So we are seeing generally it is positive. Most of that is due to our energy or increase in energy prices. Our forecast for the budget was 74. Now it's 76 and a half. We've also seen a shrinking of the, of the differential between the WCS and the wti. Both those things have added net revenue to us.

What we are seeing though is there is some, some challenges that we see. One of it's being the immigration that's, that's occurred. And we're seeing some, some challenges, some stretches in the, in our programs as we go forward. We also see that next year as well. I think we were forecasting our employment slightly uptick, I think goes from six and a half to seven. So. But now getting back to the borrowing side. So on the borrowing program, as Nicola alluded to, I think we all went through this in Covid, where, you know, it was, it didn't matter what you did, you just had to get your money in. Right. So it was more about that and we'll deal with it later. Well, here we are five years later, right.

And for us, our borrowing this year we had projected borrowing of 19.8 billion. But of that 19.8, 11.6 of it was pre funding for the 2025, because we had three months of intense borrowing that April, May and June of 2025 of 11.6 billion. And we knew that we couldn't fund that, couldn't fund that all at once. So what we've done is we strategically have been doing that throughout this year. And what we've also created is a debt retirement account which allows us to match the maturities. It's also been a win just because of the slope of the curve. So it's been a net positive for us. We've been able to do that and still make sure that we have enough money to pay the debt down.

Do you foresee the same level of pre funding for next year's deficit? Not, not us for sure because we were mostly front loaded for this year. I think next year we're only forecasted at about 5,5 billion. So. Yeah. What about you, Nicoletta? Do you, are there any macro challenges that, that can throw you off your borrowing program trajectory? I mean, we're for, for the next three years we're forecasting of our borrowing program to or at levels that, that we've seen in the past few years. So we're forecasting between 5.5 to, to $6.5 billion. Currently this year we're funding a $6.2 billion program.

So it is pretty much in line with what we've seen. The program is driven by refinancing, as Kevin mentioned, and also new cash requirements to fund a deficit and capital requirements. And the government is it's it's government that's been in power for, for one year. The focus really is on, on balancing the budget in the first term. So we'll see deficits decreasing. We're forecasting to come to balance in 27, 28. But what we've seen in this past year is on the expenditure side there's pressures on, from the health care side.

So there's a focus on rebuilding Manito healthcare with the focus on retention focus on collective bargaining agreements and then we're also seeing pressures on the healthcare side from price and volumes on the pharmacare side. So if we continue to see these pressures in healthcare that's going to have an impact on our borrowing program. And then on the capital side we laid out a five year capital program in the last budget and focused strategically on key areas of health care, housing and economic investments. There is a cap on debt finance borrowing for, for the next five years. That's $1.7 billion is, is what we're planning on debt financing. So if inflation once again becomes a concern that could have an impact on expenditures related to the capital program and impact overall borrowing.

I see growing portions of your funding have come from overseas this year. Can you explain what's driving that and whether you expect that trend to continue? Manitoba has always looked for opportunities to issue in international markets. In past years we've borrowed as much as 30% of our program in international markets. We do look at the US market, one of our primary international markets, a strategic market for us. So we try to maintain presence by issuing once or once a year or once every two years. This year we were able to issue a 10 year global debenture. We also have a European and Australian medium term note programs.

Those we've primarily issued private, private placements. Given the size of our borrowing program, we have not done benchmark aside from Australia which we did this year. But I think this year with the higher borrowing programs, international borrowings more of a, you know, look at it more strategically and then look at it as broadening our investor base which I think that has a long term impact on our borrowing program. What we've also seen this year is that arbitrage on a number of currencies, international currencies that we traditionally borrow and there are all working for us that were all on site.

So we were able to to get funding done at levels competitive to, to the domestic market, provinces in general. For ourselves we borrow international. The levels are competitive but I think provinces across the board saw that phenomenon. So it also helps with with mitigating the cost of public debt costs when there borrowing program as well. I understand that's the same situation for Alberta too, that you've been raising more debt overseas. Yeah, well, so we probably have the most volatile borrowing program of all the provinces. So for us, that really is the first thing that drives it.

So what happens is depending on the size, if it can get done Internet, if it can get done domestically, we look there and we tend to stay with the benchmarks. If it is an elevated borrowing, then our first point of contact next would be the US Market. Then we look to the euro market after that and then all the other kind of currencies fall in place. But as Nicolette alluded to this year since I've started, this is the first year that I can think of where every currency, every tenor is close to domestic funding level. So it's made it a lot easier to make those decisions.

The other point is as well is just due to the size, you know, if you can do a large US benchmark, that's the equivalent of four domestic deals. So it buys you time, you know, for your next deal, it buys you space as well. So those are all factors that we consider when we look at it. How can you maintain a presence in some of these new overseas markets when your borrowing program is shrinking next year? Well, the reality is it is going to depend on size. If we don't have the size, if it can get all funded domestically, then we would look that way. But it's going to be depending on if there's a potential increase, then we would look and like I said, our first choice would always be the US market. And then you go from there.

I see Canadian pensions have been more active in the debt market, both in Canada and overseas. And that means collaboration, but also competition. And I'm wondering if you've had, if you've had to negotiate to make space for one another when there's competing funding needs, you know, is the pie big enough for everyone? Yeah, I think the first concern that we all had is is there enough capacity in the domestic markets for the provinces, the pensions and especially with increased borrowing programs, that, that was a concern. But we do, you know, there is collaboration.

We do talk amongst each other, especially with the provinces aware of what, what's coming to the market are able to, to time our, our issuance so that we're not all looking to issue at the same time. But I think I've always, I've been surprised by the domestic market to how resilient it is and it's been able to to handle the provincial borrowing program' I mean, for ourselves, we're 80% funded for the year. So we've been able to manage our program. And I think on the international side, in terms of pensions, they've done a lot of work internationally, they've issued a lot internationally. And I think they've done a great job of just marketing the Canada brand. And I've been hearing a lot lately about Canada Inc.

And I think for ourselves we were in the Aussie market in July able to issue a benchmark transaction that was a first for us. We've issued private placements in that market before. And what we've seen is majority was Japanese investors that were participating in those private placements. With this transaction we saw much broader investor demand. We've had the Australian domestic investors that participated, Middle Eastern investor, European. And I think the success of that transaction, the broader book that we able to see, in part that's thanks to the work that has been done internationally by the provinces, the pensions and all of us working together and really promoting that brand. So what I've seen is.

So what I think is really good about the Provi marketing can is that we do have things like a large issuer protocol where we do as informally, we'll talk to each other to manage that traffic. So we do that domestically and I think it's worked very well. What's happened now is now with the case of the offshore, you now have started to look at that. So I know for me I've done that where I'll reach out. If I hear that potentially there's someone coming, I'll reach out just to get a sense of where they are. Because at the end of the day there's really only probably five of us that are really issuing and we've got 200 days, so. So we should be able to manage that activity. It's just a spirit to be able to do that. But I think so far we've done a pretty good job. It's been collaborative.

So ESG seems to be losing its luster for many investors, for some investors, but we're seeing some pension funds and provinces coming out with green bond frameworks. And I'm wondering, how does ESG fit into your funding plan? Do you have plans to develop such frameworks and what do you see as the pitfalls of such programs or what are the aspects of ESG that most appeal to you? So we've had many conversations internally with regards to a formal ESG framework, sustainable bond framework. I think it does require a whole of government approach. There's a lot of work that needs to be done on the reporting side to be done properly and timely basis. So it does require that full of government approach.

I think from a borrowing perspective, our concerns as do we have large enough projects, large enough program to be able to issue off a framework on a regular basis to build a curve. So those are the discussions we're having. We also see benefits from having an ESG program, a framework, and that is that it provides investor diversification, broaden the investor base, it allows access to those investors that strictly buy label bonds, also access to those portfolio managers that manage more than one portfolio. And that leads to diversification for our conventional program. So there's, we can see the benefits, there's also concerns there.

But I think government by nature implements social programs, look at programs that deal with climate risk and reaching the goals of NET 0 by 2050. So there's work that is being done. The question is for ourselves is does it require a formal ESG framework? Do we look at putting out a report on there that touches on the ESG and what is government doing from that perspective? Manitoba two weeks ago released the Affordable Energy. While it's not a climate plan or a climate policy, it does work towards the goal of reaching near zero by 2050. And energy plan, it's based on principle of affordability, indigenous reconciliation talks about energy efficiency, jobs, economic development, as well as just security and reliability of the electricity grid. So these are all, I think components of an ESG framework.

How does it look to Alberta? So, you know, as Nicola alluded to, we still are evaluating and monitoring, but as right now, that's my knowledge, we don't have a framework. And the other point that she had made as well is the management of second curves. Again, being an infrequent or volatile issuer just adds complexity to that whole side of it as well. Speaking of that, how do you manage the boom and bust cycles of commodities and energy? And we're looking like oil is not doing so hot. You know, that's a really good question.

So what we do is we maintain benchmarks. That's always a priority. There are opportunities to do MTNs if your borrowings elevated, but for the most part it's always focusing on the domestic benchmarks. And then as we did this year, then we looked to the offshore benchmarks, but it's always benchmarks. We find that's the best route. Okay, well that's less of an issue for Manitoba. Less reliant on energy, I think that's all. Thank you both. Thank you.

ECONOMICS, FINANCE, GLOBAL, DEBT MANAGEMENT, CANADIAN MARKETS, BORROWING STRATEGIES, BLOOMBERG LIVE