The Globe and Mail reports in its Monday, March 15, edition that the Bank of Canada has expanded the size of its daily bond sale and repurchase program.
The Globe's Mark Rendell writes that the BOC owns nearly 40 per cent of the federal government bond market as a result of its $4-billion-a-week bond-buying program, also known as quantitative easing, or QE. This is putting pressure on the "repo" market, a key funding market for financial institutions, where dealers swap bonds for cash on a short-term basis.
With more bonds on the BOC's balance sheet, there are fewer available for private-sector institutions. That means more money chasing fewer bonds in the repo market, bidding up their price and causing the benchmark Canadian Overnight Repo Rate Average to trade below the BOC's 0.25-per-cent target for overnight funding. Bonds are said to trade "on special" in the repo market when demand outstrips supply.
On Friday, the BOC adjusted its securities repo operations (SROs) to increase the availability of government bonds to financial market participants. The BOC said it would make $2-billion worth of bonds and treasury bills available daily to each primary dealer, up from $1-billion.
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