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Canada Premium Bonds come off the presses at the Canada Bank Note Company in Ottawa.

Ottawa's borrowing is at an all-time high, but that hasn't stopped the government from rendering a historical and cherished lending program obsolete: the Canada Savings Bonds program.

During the 1980s, savings bonds were an important part of financing the federal government's large deficits. At their peak, they drew more than $17-billion in a single year from ordinary Canadians who wanted a super-safe investment.

But as this week's budget makes clear, the Canada Savings Bonds (CSB) program has slid into irrelevance. Though Ottawa is expected to borrow $258-billion in the next fiscal year to cover its deficit and roll over existing debt, only $2-billion of that will come from CSBs, according to budget documents.

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Investor interest in the government bonds has waned in recent years as rates on the bonds have failed to keep pace with other similarly low-risk, stable investments such as guaranteed investment certificates. But the government hasn't moved to keep up with market rates, after a 2004 review showed that the cost to taxpayers of administering the program was too high.

On Tuesday, Ottawa said it is now looking at ways of trimming the program. "Over the coming year, opportunities to reduce overall program delivery costs will be explored," the budget said.

The decline of CSBs comes at a time when the government says it needs to raise $258-billion to meet all of its spending obligations over the next year. To do that, $145-billion will be borrowed through short-term Treasury bills, and $102-billion will be financed through bonds. Both of these securities are targeted to institutional investors.

Although retail government debt, which includes CSBs and Canada Premium Bonds (fixed 10-year investments), has been declining for years, the downfall really accelerated over the past decade. In 2000, the Ottawa had $26.5-billion of retail debt outstanding; that total fell to about $11-billion last year.

Much of that has to do with the paltry interest rates that CSBs now pay. In 2010 they offered 0.65 per cent annually, which is lower than some chequing accounts and bank GICs that typically pay above 2 per cent.

In 2004 the federal government hired an outside consultant to review its retail debt program, and that group concluded that the CSB program was losing relevance and recommended that it be gradually phased out. Retail debt - selling directly to consumers instead of institutions - was an expensive source of funds, the report found, and pegged the cost to taxpayers from 1997 to 2003 at $1-billion.

That's a change from the mid-90s, when the government acknowledged that it faced a big debt load, and aimed to both maintain a diversified investor base and ensure that a chunk of federal debt could be held directly by individual Canadians.

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But by 2004, Ottawa had racked up seven consecutive budget surpluses in "a remarkable fiscal turnaround which has lessened its need to borrow money," the report said. "At the same time, consumers now have a wider range of choices among investment options."

The choices referred to are the plethora of guaranteed investment vehicles and high-interest accounts that Canadian banks now offer, which are backed by federal deposit insurance up to a certain amount.

"Canada is a nation of savers," said Peter Aceto, head of ING Direct in Canada, the first bank to offer high-interest accounts in Canada. But while Mr. Aceto vividly remembers getting Canada Savings Bonds as gifts when he was younger, and heading to the bank to cash them when they matured, he said the government fell off by not offering enough interest, so Canadians "were not being rewarded for their saving habits," he said.

These habits are particularly relevant coming out of the financial crisis. Bank of Montreal conducted some research and found that 70 per cent of the population would be willing to give up a percentage of investment gains for 100-per-cent stability and security.

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