Government of Canada Fixed-Income Market Ecology II: Government of Canada Bond Dealing

This paper describes the organization of the market for trading Government of Canada (GoC) bonds. We outline the role of investment dealers in intermediating trading, distributing GoC securities and providing liquidity across the yield curve. We describe the key features of GoC bond trading and the financial market infrastructures that support it. We also review dealers’ risk-management and funding practices, with a focus on interest rate hedging and the use of benchmark bonds and related derivatives. The structure of the GoC bond market reflects both prudential and dealer-specific regulatory frameworks. As well, it reflects dealers’ ability to manage inventory, basis risk and short-term volatility—factors that shape trading costs and liquidity conditions in both benchmark and non-benchmark bonds.