Summary of Comments

The Government of Canada considers regular consultations with market participants to be an essential component of its ongoing commitment to a well-functioning government securities market and an integral part of the debt management process.

In November 2014, a total of 46 bilateral meetings were held with organizations in Toronto, Montreal, New York, Vancouver and Winnipeg. This year’s consultations sought the views of market participants on the functioning of Government of Canada treasury bill and bond markets, and on the terms of participation in auctions.

The Bank of Canada and Department of Finance value the comments provided by market participants during consultations. The following summarizes the comments that were received.

Bond Program

The Government of Canada bond market continues to function well according to market participants, with strong demand across the yield curve. Participants suggested increasing benchmark sizes across all maturity sectors to enhance market liquidity. They noted that issuance in the 3-year sector could be discontinued, and the foregone issuance rolled into the 2- and 5-year sectors. The need for duration seemed robust, with market participants indicating that demand for 30- and 50-year bonds would persist over the near term despite yields being near historical lows.     

The possibility of conducting bond auctions on Thursdays following a Bank of Canada Fixed Announcement Date in order to provide more flexibility in the scheduling of bond auctions was well received1.

Repo Market

Tightness in the repo market for Government of Canada securities was characterized as structural by market participants and similar to the tightness observed in other sovereign bond repo markets. Participants noted that larger benchmark sizes could alleviate some of the tightness seen in the repo market for Government of Canada securities, but would not eliminate it.

Treasury Bill Program

Market participants noted that demand for Government of Canada treasury bills remains strong, driven by the increasing need for high quality liquid assets and collateral for derivatives transactions. Market participants were of the view that the issuance split amongst the 3-, 6- and 12-month treasury bill sectors was appropriate and that the treasury bill market has the capacity to adapt to a lower treasury bill stock over the medium term. Some participants, however, expressed concern about the transition to a lower treasury bill stock, indicating that auction size consistency would become increasingly important given that some investors do not have the flexibility to buy substitutes.

Review of the Terms of Participation in Auctions

Primary dealers supported the introduction of a short grace period after auctions to make changes to their net positions report, and indicated that changes to the terms of participation in auctions should continue to promote quality intermediation, a long-term commitment to the Canadian fixed income market, accountability and appropriate risk management.