Purpose
This paper aims to present four blue-sky ideas for lowering the cost of the Government of Canada’s debt without increasing the debt’s risk profile.
Design/methodology/approach
The authors argue that each idea would improve the secondary-market liquidity of government debt, thereby increasing the demand for government bonds, and thus, lowering their cost at issuance.
Findings
The first two ideas would improve liquidity by enhancing the active management of the government’s debt through market operations used to support the liquidity of outstanding bonds. The second two ideas would simplify the set of securities issued by the government, concentrating issuance in a smaller set of bonds that would each be more highly traded.
Originality/value
The authors discuss the ideas and give an account of the political, legal and operational impediments.
Secondary Market Liquidity and Security Design: Theory and Evidence from ABS Markets
