Canada risks bond market’s wrath if fiscal picture deterioates

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A wise man once said: “Beauty is in the eye of the bondholder.”

That’s valuable wisdom as the federal government gears up for this year’s budget. When judging the sustainability of Canada’s fiscal plans, the perspective of the financial markets matters the most, because they finance deficit spending and determine government borrowing costs.

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In the 2023 Fall Economic Statement, released in November, the federal government repeated a recent habit of further postponing the return to fiscal balance. When compared with Budget 2023, the deficit trajectory is now projected to fall more slowly in future years.