Inflation Without a Shield: The Risks of Canada’s Decision to Stop Issuing Real Return Bonds

This report assesses the market response to the Government of Canada’s (GoC) decision to discontinue real return bonds (RRBs) in 2022. This policy change introduced a number of potential risks, including higher debt servicing costs for long-duration government liabilities, the erosion of a market-based gauge of inflation expectations, and a diminished toolkit for institutional investors seeking to hedge inflation.