Ontario capitalizes on inflation fears

Inflation splits in the Street these days.

For every economist who's convinced that inflation is dead and buried, as prices and wages go sideways, there's a money manager dead-set in their belief that the American's government's low interest rate policy and massive deficits must reawaken this monster.

Those who fear inflation is a threat were able to do something about it Tuesday, as Ontario launched a $200-million issue of real return bonds.

Ontario sold debt that comes due in 2036 and pays an interest rate pegged at 2 per cent above inflation. BMO Nesbitt Burns, Laurentian Bank Securities, RBC Dominion Securities and TD Securities led the transaction.

The provincial inflation-linked notes yield 30.6 basis points more than popular real return bonds sold by the federal government, according to a report late Tuesday from TD Waterhouse.

There are now $2.84-billion of these Ontario bonds outstanding; in other words, investors hold a considerable amount of insurance against inflation. Pension funds are particulary keen on this type of debt.