08:06 AM EDT, 07/17/2025 (MT Newswires) -- While the release of Canada's Debt Management Strategy (DMS) was unexpected on Wednesday, its contents were less of a surprise, said Desjardins.

The borrowing program for fiscal year 2025-26 has been upsized by $86 billion relative to the previous year. The increase in bill issuance is very light, with its share of total issuance projected to fall to 48% from 54%, which is still above pre-COVID levels, noted the bank.

That said, while this would be the lowest bill share since 2021-22, Desjardins believes this may not fully capture the planned deficit that will be published in the coming fall budget. The bond program is increasing by $74 billion to $316 billion. Bond issuance will be spread across the curve with an additional $26 billion in two years, $21 billion in both the five-and 10-year sectors, and $7 billion in 30 years. The relative share of bond issuance in each sector will be relatively unchanged compared with last year.

As a result of these increases, auction sizes are rising to accommodate, but much of this was already announced, stated the bank. The five- and 10-year sectors previously had another auction added to the schedule for Q2. The two-year schedule remained unchanged, but an additional auction was added to the calendar in last year's FES. The 30-year sector was left untouched.

The trial program on the one-month bill was terminated following consultations with market participants. Separately, the government maintained its plan to purchase $30 billion of Canada Mortgage Bonds.

Wednesday's DMS release was met with a shrug by market participants, pointed out Desjardins. While Canadian rates have risen in recent weeks, the bank continues to view the Canadian bond market as among the more favorably positioned. Even with the expected increase in borrowing, Desjardins believes it's unlikely that Canada will lose its AAA credit rating.

Although the read-through from the DMS to deficits is "murky," the increase in issuance appears largely in line with the bank's view of the fiscal deficit for this year. Overall, Desjardins believe that Canadian fixed income stands to benefit from any potential rotation away from United States assets and further easing from the Bank of Canada, which isn't being priced in by markets at the moment.