"Trills" Proposed to Benefit Canadians and Their Government: C.D. Howe Institute

    TORONTO, Aug. 12 /CNW/ - Canadians would benefit from a new security that
gives them an equity stake in the nation's economic growth as well as
protection against inflation, according to a Commentary released today by the
C.D. Howe Institute. In The Case for Trills: Giving Canadians and their
Pension Funds a Stake in the Wealth of the Nation, authors Mark Kamstra of the
Schulich School of Business at York University and Robert J. Shiller of Yale
University propose an innovative new security, a GDP-linked-bond issued by the
Government of Canada.
    The authors call their new security the "Trill"; so named because its
coupon payment would be one-trillionth of Canada's GDP. Similar to equity
shares which pay a fraction of a corporation's earnings in dividends, the
Trill would pay a fraction of the "earnings" of Canada. The coupon would be
linked to movements in the GDP.
    For average investors, the Trill would be a useful new source of income,
offering both exposure to income growth and protection against inflation. This
security would also appeal to large institutional investors who have a need to
match long-term liabilities with assets that can provide stable, long-term
cash flows. Currently, a large part of pension fund assets are held in nominal
fixed-coupon Government of Canada securities. These securities do not provide
protection from inflation and the limited numbers of real return bonds the
government issues do not provide exposure to income growth. Trills would fill
this gap.
    For the government, Trills would also be beneficial. The authors show the
cost of issuing Trills would be low, possibly less than some current
government securities. Trills would have the additional benefit of providing a
natural hedge against budget shortfalls, thus improving the government's
ability to achieve its goal of more stable funding. Most promisingly, the
proceeds could be used to fund federal government obligations that are
currently unfunded.

    The study is available at: http://www.cdhowe.org/pdf/commentary_271.pdf.

For further information:

For further information: on this study contact: Mark Kamstra, Associate
Professor of Finance, York University, (416) 736-2100, ext. 33302; Robin
Banerjee, Policy Analyst, C.D. Howe Institute, (416) 865-1904,

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