Government of Canada Pilot Cash Management Bond Buyback Program Launch: Operational Framework

On behalf of the Minister of Finance, the Bank of Canada announced today that the government will be proceeding on a pilot basis with a bond buyback program for cash management purposes. The program is designed to reduce the peak levels of government cash balances needed to redeem large upcoming maturities of Government of Canada marketable bonds. Design of the operational framework has been based on consultations with market participants. The government will review whether the program should be made permanent based on the experience with the pilot program. The first pilot operation will be conducted in January 2001.

Overview of Operational Framework

On behalf of the government, the Bank of Canada will be conducting operations to buy back bonds with less than 12 months to maturity. The government will target bonds that mature on dates where the total amount of bonds outstanding is greater than $6 billion. The outstanding amount maturing on any given target date will not be reduced below the $6 billion threshold by these buyback operations.

Specific details of each buyback operation, including the maximum size and the targeted bond issues, will be announced approximately one week prior to the date of the operation.

The program will target whole bonds rather than the underlying components (i.e. stripped bonds and coupon flows). All operations will be subject to the Standard Terms for Repurchase Operations of Government of Canada Marketable Bonds.

Government Securities Distributors (GSD) and customers with their own bidder identification number (BIN) will be eligible to participate in the cash management buyback program. Customers without a BIN can tender offers through a GSD. The Bank will accept a maximum of five offers per targeted bond from each GSD.

The deadline for submitting offers will be 10:30 a.m. on the day of the operation. Every effort will be made to announce the results no later than one half-hour after the bidding deadline. The results will include the amount of each bond bought back, the new outstanding amount of each bond and the cut-off yield for each repurchased bond.

Buyback transactions will be settled on a cash basis on day t+2. The repurchased bonds will subsequently be cancelled.

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