Usage of strip bonds
U.S. largest in absolute size
In absolute dollar terms, the U.S. market has the largest value of stripped bonds, with $177 billion stripped. The second largest is Canada (based on the gross value stripped), with $68 billion USD (gross, or $48 billion net), followed by France ($50 billion USD). If the net Canadian figures are used (i.e. adjusting for the bonds that were synthetically created using strip bond packages), the second largest is France, with Canada about 3% or $1.6 billion behind France.
Canada largest relative to population
Since the size of these markets varies greatly, I also made a rough adjustment, to divide the value of the stripped bonds by the population of the country, using figures obtained from the U.N. web site. By this measure, the strip bond market seems to be much more significant in Canada than elsewhere, with a ratio more than double that in any other country. Also, the gross percentage of federal government bonds stripped in Canada is much higher than elsewhere, even though the Canadian market also supports the stripping of many other bonds that are not supported elsewhere.
There are a number of factors that may have contributed to this development, including marketing by investment dealers, differences in investor preferences, differences in market conditions (e.g. higher interest rates), and the unique structural features of the Canadian strip bond services.
Canada or France largest relative to government debt
Another indicator that may be significant for federal government debt is the percentage of the government's debt that has been stripped. In this case, Canada has 11.9% of federal government bonds stripped if measured on a gross basis. If the bonds created using strip bond packages are excluded, this is reduced to 4.9%. France is next at 8.6%, followed by the U.S. at 7.4%. One point to note is that Canada is the only market where the federal government bonds represent less than 40% of the total stripped bonds; the others are at or very close to 100%.
Eligibility
In most markets, there has been an effort made to improve the liquidity of the strip bonds by restricting the issues that may be stripped. Over time, these restrictions seem to be loosening.
Canada is the only country that did not have any such restrictions from the start of the service. Perhaps this has led to more fragmentation of the supply and demand in the strip bonds market, but it also has given investors a lot more flexibility in meeting their needs. This is particularly true for investors who were trying to use the strip bonds to offset known future liabilities.
The table at the bottom of this page was compiled from publicly available data (available as links from this site) and shows the usage of the services. NOTE: The statistics are not strictly comparable, since different dates were used for some of the data. However, the numbers give a reasonable idea as to the relative usage of the services.
The information is also available in graph form:
| Country | Total face value of stripped underlying bonds (local currency - millions) | Total face value of stripped underlying bonds in USD (millions) * | As of date | % fed. govt. domestic market bonds stripped | Value (USD) per 1,000 population |
| Canada | 86,560 | 63,864 | 2003/06/30 | 11.88% | 2.03 |
| United States of America | 177,577 | 177,577 | 2003/07/31 | 7.42% | 0.06 |
| France | 43,435 | 49,963 | 2003/06/30 | 8.64% | 0.83 |
| Spain | 13,061 | 15,264 | 2003/6/10 | 5.19% | 0.37 |
| United Kingdom | 1,469 | 2,424 | 2003/06/27 | 0.87% | 0.04 |
| The Netherlands | 3,072 | 3,534 | 2003/06/30 | 1.83% | 0.22 |
| Germany | 4,175 | 4,690 | 2003/07/31 | 1.14% | 0.06 |
| Belgium | 5,104 | 5,778 | 2003/06/30 | 2.55% | 0.56 |
| Austria | 187 | 216 | 2003/06/30 | 0.17% | 0.03 |
| Italy | 2,409 | 2,736 | 2003/08/06 | 2.45% | 0.48 |
| New Zealand | not available on a public web site | n.a. | |||
| South Africa | not available on a public web site | n.a. | |||
| Sweden | not available on a public web site | n.a. | |||
| Japan | not available on a public web site | n.a. | |||
| India | service not available | n.a. | |||
| Korea | service not available | n.a. |
* Currencies converted using Bank of Canada U.S. dollar closing rates for the date shown.
NextCopyright Keith Campbell ©2002-2004. All rights reserved.