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Government of Canada Pilot Bond Switch Program Launch: Operational Framework

On behalf of the Minister of Finance, the Bank of Canada announced today the operational framework for a pilot bond switch program. The program is designed to support the maintenance of a liquid Government of Canada new issue bond market through the exchange of less liquid outstanding bonds (repurchase bonds) into a benchmark bond (replacement bond). Design of the operational framework has been based on consultations with market participants. The first pilot operation will be conducted on 27 February 2002 and will target the long-term sector of the yield curve.

Overview of Operational Framework

Pilot switch operations conducted on behalf of the government by the Bank of Canada will be in addition to the current bond buyback program. Planned switch operations will be announced in the Quarterly Bond Schedule. Details of each operation will be announced approximately one week prior to the date of the operation, including the target size for the operation in terms of the maximum amount of replacement bonds to be issued. Specific bonds targeted for switch will be identified in a range of maturities related to that of the replacement bond.

The Bank of Canada will accept offers up to 12:30 p.m. on the day of operation on the basis of a yield spread between the replacement bond and each targeted bond. The switch operation will be made on a duration neutral basis to reduce participants'market risk. The replacement bond price will be released at 12:00 noon on the Communication, Auction and Reporting System (CARS). A conversion ratio will be calculated at the submission deadline for each targeted bond.

Government Securities Distributors (GSD) and customers (through a GSD) with their own bidder identification number (BIN) will be eligible to participate in the switch program. To minimize turnaround time for processing offers, a maximum of five offers per repurchase bond will be accepted from each GSD.

All operations will be subject to the Standard Terms for Switch Operations of Government of Canada Marketable Bonds available on the Bank of Canada's web site.

Every effort will be made to announce the results of the switch operation at 1:00 p.m., half an hour after the submission deadline. The results will include the amount of replacement bond issued, the amount of each bond bought back, the new outstanding amount of each bond and the cut-off yield for each bond bought back.

Content Type(s): Press, Market notices