Pensions want their real-return bonds back

Good morning! In this week’s newsletter, Barbara Shecter reports on the battle brewing over Ottawa’s cancellation of the real-return bond program, the Quadriga scandal springs back to life and the Financial Times delivers lessons from a meltdown near-miss. Note to Readers: FP Finance will take a holiday next week. Look for us again in your inbox on Thursday Jan. 5.

— Joe Hood, Managing Editor, Financial Post

Ottawa faces bond backlash

Inflation was missing in action for more than a decade before its recent resurgence, an absence that made it easy to ignore inflation-protected bonds, a sleepy corner of the government bond market favoured by large institutional players. It’s easy to imagine Ottawa’s displeasure when inflation roared back to life and it realized it would be paying out significantly more on those securities, to the benefit of pensions and the private sector. But as Barbara Shecter reported this week, Finance Minister Chrystia Freeland’s decision to kill the program outright — and the offered rationale that the bonds were illiquid and not in demand — are not sitting well with the pension world, which is clamouring for its bonds back.

BYE-BYE BONDS

PLUS: Senator calls for Ottawa to bring back RRBs

Quadriga mystery deepens

Canadian crypto exchange QuadrigaCX collapsed in 2019 with the apparent death of founder Gerald Cotten, leaving millions in client funds unaccounted for. Cotten, it seemed, was the only person with the keys — or passwords — to the company’s crypto wallets. This week, the story sprang back to life when the trustee overseeing Quadriga’s bankruptcy announced it was investigating an “unauthorized” transfer of about 100 bitcoins from previously cold wallets. While the details are scant, the action in the dormant accounts has revived speculation about Cotten’s fate and the claims that he was the only person who had control of the company’s funds. 

TALES FROM THE CRYPTO

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Lesson from the U.K.’s gilts crisis

The award for most spectacular financial collapse of 2022 no doubt belongs to failed crypto exchange FTX, but if there’s a prize for near misses the U.K. government bond market should be the top contender. The market for gilts, as they’re known across the pond, was sent into a tailspin in the fall when then-Prime Minster Liz Truss tabled a budget that promised tens of billions of pounds in tax cuts, with no plan to pay for them. The ensuing spike in yields exposed a high-risk derivative strategy used in the country’s pension plan system, forcing the Bank of England to intervene before things spiralled out of control. The Financial Times tried to draw some lessons from the crisis this week, asking whether the country’s pension system could be trusted when the withdrawal of central bank liquidity is testing markets like never before.

RISKY BUSINESS

Analysis: Failure of CannTrust case leaves plenty of questions for OSC 

Canada goes after $26 million in assets from Russian oligarch Roman Abramovich 

OSFI leaves mortgage stress test unchanged as safety buffer against growing risk 

OSFI head flags rising cost of debt for strained households as biggest risk heading into 2023 

Goldman Sachs considering cutting as many as 4,000 jobs 

Citigroup letting its employees work from anywhere for last two weeks of the year 

The FP Finance Newsletter was compiled by FP Managing Editor Joe Hood. Reporters Barbara Shecter and Stephanie Hughes go where the action is. Designer Gigi Suhanic made it look great and web editors Pamela Heaven, Victoria Wells and Noella Ovid contributed at every step along the way.

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