The Financial Post reports on why the sharp escalation of global bond yields in recent weeks raises the prospect we may be in the middle of a structural shift to a world of permanently higher borrowing costs. This poses a problem for Canada's federal government, whose heavy borrowing over the past three years was premised on the idea that interest rates would remain at historically low levels.
The Post says that, "As a guardrail for policy, former Bank of Canada Governor David Dodge has proposed a 10 percent prudence rule as an anchor for the federal government, whereby debt service charges are kept at no more than one-tenth of revenue.
The March budget had projected interest payments would remain below that threshold throughout the forecasting horizon. But the increase in global bond yields has put it on a path to breach Dodge’s rule, perhaps permanently, without additional fiscal adjustments.
Bennett Jones