Canada’s Discontinuation of the One-Month Treasury Bill: Implications for Global Fixed Income Investors

Fixed Income • July 19, 2025
Canada’s Discontinuation of the One-Month Treasury Bill: Implications for Global Fixed Income Investors

Canada’s Discontinuation of the One-Month Treasury Bill: Implications for Global Fixed Income Investors

Bank of Canada Tower
The Bank of Canada in Ottawa, responsible for managing government securities auctions
Source: LinkedIn / Bank of Canada

On July 29, 2025, the Government of Canada will conduct its final auction of the one-month treasury bill (T-bill), officially discontinuing this ultra-short-term debt instrument. This strategic shift, announced as part of the 2025-26 Debt Management Strategy and aligning with the federal 2024 Budget’s temporary issuance policy, marks a notable evolution in Canada’s debt management framework.

For global fixed income investors, this development carries meaningful implications for liquidity, yield curve dynamics, and cross-border portfolio strategies. This article presents a detailed analysis of the rationale behind the discontinuation, market impact considerations, and actionable insights for investors navigating the Canadian and wider sovereign debt landscape.

Strategic Rationale Behind Discontinuation

Introduced as a tactical measure to enhance short-term funding flexibility amid evolving fiscal conditions, the one-month T-bill served as a supplementary tool in Canada’s debt issuance arsenal. However, the Bank of Canada and the Department of Finance have evaluated the instrument’s role and concluded that streamlining issuance towards more liquid and standardized maturities better serves market efficiency.

According to Bank of Canada market notices, the one-month T-bill was always conceived as a temporary addition, with issuance volumes and investor demand informing its continuation. The cessation enables focus on more actively traded T-bill tenors such as three-month and six-month maturities, which constitute the backbone of Canada’s short-term debt market.

Market Impact: Liquidity and Yield Curve Dynamics

Liquidity Concentration in Short-Term Debt

The removal of the one-month tenor is anticipated to reduce fragmentation within the ultra-short segment of Canadian treasury bills. Market participants have noted that the presence of multiple short-dated instruments creates dispersion in bid-ask spreads and trading volumes. Consolidation around the three- and six-month bills should enhance liquidity concentration, facilitating tighter spreads and more efficient price discovery.

This liquidity enhancement is particularly relevant for cash management desks and money market funds that rely on ultra-short government securities as safe, liquid instruments. The three-month T-bill is well-established as a global benchmark for short-term risk-free rates, and its increased prominence may attract incremental trading activity.

Yield Curve Adjustment

The withdrawal of the one-month bill will shift the shortest Canadian sovereign benchmark from one month to three months, with potential implications for the very short end of the Canadian yield curve. Market expectations suggest a slight steepening of the ultra-short segment as the curve adjusts to the absence of the ultra-short tenor, while the three-month bill yield may incorporate increased trading volume and demand effects.

Portfolio managers employing cash duration strategies will need to recalibrate accordingly. Instruments that previously relied on one-month bills for fine-tuning liquidity and duration exposure will now use three-month bills or overnight repos, potentially increasing short-term funding costs marginally.

Implications for Global Fixed Income Investors

Portfolio Allocation and Cash Management

Global investors with exposure to Canadian government securities must reassess their short-term holdings. The absence of the one-month T-bill removes a granular maturity option for tactical cash and duration positioning, requiring adjustments in portfolio construction and liquidity buffers. This is particularly relevant for sovereign wealth funds, insurance companies, and money market funds that emphasize cash-equivalent instruments for capital preservation.

Hedging and Relative Value Considerations

The recalibration of Canada’s short-term debt issuance may influence cross-border relative value strategies. The change alters the Canadian yield curve shape, affecting spreads between Canadian T-bills and comparable US Treasury bills or other developed market short-dated instruments. Investors utilizing cross-currency basis swaps or hedging short-term Canadian dollar (CAD) exposure should monitor potential basis shifts and adjust hedging parameters accordingly.

Broader Context: Sovereign Debt Market Optimization

Canada’s decision mirrors a broader international trend of sovereign issuers refining debt issuance frameworks to enhance market functioning and meet evolving investor demand. Many developed countries periodically adjust issuance schedules, maturities, and instruments to improve liquidity, reduce fragmentation, and optimize funding conditions.

For example, the United States Treasury has historically introduced and retired various treasury bill maturities and reopened bonds to balance market needs. Similarly, European sovereign issuers continuously calibrate issuance sizes and maturities to align with investor appetite and regulatory environments.

Global investors should remain vigilant about ongoing sovereign issuance program evolutions, as these can materially affect liquidity conditions and benchmark yield constructions across multiple jurisdictions.

Actionable Investor Strategies

  1. Portfolio Review and Rebalancing:
    Assess and realign short-term government securities exposure to reflect the removal of the one-month T-bill. Emphasize three- and six-month bills as core ultra-short instruments in Canadian fixed income allocations.

  2. Duration Management:
    Anticipate subtle steepening at the short end of Canada’s yield curve. Adjust duration positioning and cash equivalents accordingly, balancing yield enhancement with liquidity needs.

  3. Utilize Liquid ETFs and Money Market Funds:
    Employ exchange-traded funds (ETFs) and money market funds focused on Canadian government debt to maintain tactical flexibility and efficient access to short-term instruments.

  4. Monitor Central Bank Communications:
    Follow announcements from the Bank of Canada and the Department of Finance for updates on debt management strategies, auction calendars, and market operations.

  5. Cross-Border Hedging Adjustments:
    For investors employing currency hedges or relative value trades involving Canadian debt, revisit hedging strategies to account for altered yield curve dynamics and liquidity profiles.

Conclusion

Canada’s discontinuation of the one-month treasury bill auction on July 29, 2025, represents a purposeful refinement of sovereign debt issuance designed to bolster market efficiency and liquidity. While the move may appear subtle, it carries strategic significance for global fixed income investors engaged with Canadian government securities.

Adjusting to this development requires recalibrated portfolio positioning, enhanced liquidity management, and attentive monitoring of yield curve shifts. In the evolving environment of sovereign debt markets, such tactical agility is essential to capturing yield opportunities, controlling risk, and optimizing cross-border fixed income allocations.

Understanding these changes within Canada’s debt management blueprint will better position investors to navigate an increasingly complex and interconnected global fixed income landscape.

Canadian Government Bonds
Illustration: Canadian government securities market dynamics

References

Written July 19, 2025