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Staff analytical notes

CORRA: Explaining the rise in volumes and resulting upward pressure

On May 27, 2024, the settlement period for trading GoC bonds in the secondary market in Canada moved from two days to one. This shortened time for settling secondary cash bond trades caused CORRA volumes to rise significantly, and they have remained elevated since. This combined with the skew in demand for funding has pressured CORRA higher. We find no indications that any other factors are contributing to the most recent pressures on CORRA.
Boran Plong
Boran Plong
Neil Maru
Neil Maru
Content Type(s): Staff analytical notes, Staff research
August 12, 2024
Staff analytical notes

Could all-to-all trading improve liquidity in the Government of Canada bond market?

We find that on any given day, nearly half of Government of Canada bond transactions by clients of dealers can be offset with other clients, including during the turmoil in March 2020. Our results show that under certain conditions clients could potentially trade directly with each other and are a step towards understanding the relevance of broader all-to-all trading in the Government of Canada bond market.
Jabir Sandhu
Jabir Sandhu
Rishi Vala
Rishi Vala
Content Type(s): Staff analytical notes, Staff research
July 15, 2024
Staff analytical notes

Liquidity risks at Canadian life insurance companies

We examine how life insurers manage liquidity risks created by their business model. We find that Canadian life insurers did not face significant liquidity draws and continued their usual investment behaviour during the COVID-19 crisis and as interest rates increased in 2022.
Patrick Aldridge
Patrick Aldridge
Stephane Gignac
Stephane Gignac
Rishi Vala
Rishi Vala
Adrian Walton
Adrian Walton
Content Type(s): Staff analytical notes, Staff research
April 17, 2024
Staff analytical notes

Three things we learned about the Lynx payment system

Canada transitioned to a new wholesale payment system, Lynx, in August 2021. Lynx is based on a real-time settlement model that eliminates credit risk in the system. This model can require more liquidity; however, Lynx’s design allows Canada’s wholesale payments to settle efficiently.
Nikil Chande
Nikil Chande
Zhentong Lu
Zhentong Lu
Hiru Rodrigo
Hiru Rodrigo
Phoebe Tian
Phoebe Tian
Content Type(s): Staff analytical notes, Staff research
October 10, 2023
Staff analytical notes

Do hedge funds support liquidity in the Government of Canada bond market?

While Government of Canada bond transactions of hedge funds are typically in the opposite direction to those of other market participants, during the peak period of market turmoil in March 2020, hedge funds sold these bonds, just as other market participants did. This shows that hedge funds can at times contribute to one-sided markets and amplify declines in market liquidity.
Jabir Sandhu
Jabir Sandhu
Rishi Vala
Rishi Vala
Content Type(s): Staff analytical notes, Staff research
August 1, 2023
Staff analytical notes

How does the Bank of Canada’s balance sheet impact the banking system?

We examine how changes in the Bank of Canada’s balance sheet impact the banking system. Quantitative easing contributed to an increase in the size of the banking system’s balance sheet and an improvement in bank liquidity coverage ratios. Quantitative tightening is expected to partially reverse these impacts. The banking system will have to adjust its liquidity management strategy in response.
Daniel Bolduc-Zuluaga
Daniel Bolduc-Zuluaga
Brad Howell
Brad Howell
Grahame Johnson
Grahame Johnson
Content Type(s): Staff analytical notes, Staff research
September 22, 2022
Staff analytical notes

Fixed-income dealing and central bank interventions

We summarize the theoretical model of central bank asset purchases developed in Cimon and Walton (2022). The model helps us understand how asset purchases ease pressures on investment dealers to restore market conditions in a crisis.
David Cimon
David Cimon
Adrian Walton
Adrian Walton
Content Type(s): Staff analytical notes, Staff research
June 30, 2022
Staff analytical notes

Potential netting benefits from expanded central clearing in Canada’s fixed-income market

We assess whether more central clearing would enhance the resilience of Canadian fixed-income markets. Our analysis estimates the potential benefits of balance sheet netting under scenarios where central clearing is expanded to new participants.
Jessie Ziqing Chen
Jessie Ziqing Chen
Johannes Chen
Johannes Chen
Shamarthi Ghosh
Shamarthi Ghosh
Manu Pandey
Manu Pandey
Adrian Walton
Adrian Walton
Content Type(s): Staff analytical notes, Staff research
June 22, 2022
Staff analytical notes

Non-bank financial intermediation in Canada: a pulse check

The Canadian non-bank financial intermediation (NBFI) sector saw strong growth in 2018 and 2019. In 2020, COVID‑19 caused a financial shock. We provide a preliminary analysis on the impact of COVID‑19 on the sector as well as an update on its growth.
Rohan Arora
Rohan Arora
Guillaume Bédard-Pagé
Guillaume Bédard-Pagé
Philippe Besnier
Philippe Besnier
Hayden Ford
Hayden Ford
Alan Walsh
Alan Walsh
Content Type(s): Staff analytical notes, Staff research
March 23, 2021
Staff analytical notes

Announcing the Bankers’ Acceptance Purchase Facility: a COVID‑19 event study

The Bank of Canada launched the Bankers’ Acceptance Purchase Facility (BAPF) to ensure that the bankers’ acceptance (BA) market could continue to function well during the financial crisis induced by the COVID‑19 pandemic. We review the impact that the announcement of this facility had on BA yields in the secondary market. We find that BA yield spreads declined by 15 basis points on the day of the announcement and by up to 70 basis points over a longer period. Using an econometric framework, we quantify the effect of the announcement and confirm early assertions presented in the Bank’s 2020 Financial System Review.
Rohan Arora
Rohan Arora
Sermin Gungor
Sermin Gungor
Kaetlynd McRae
Kaetlynd McRae
Jonathan Witmer
Jonathan Witmer
Content Type(s): Staff analytical notes, Staff research
October 19, 2020
Financial System Hub articles

A Resolution Regime for Financial Market Infrastructures

Canada’s most important payment clearing and settlement systems now have a resolution regime. As resolution authority, the Bank of Canada has new powers to protect the stability of the Canadian financial system in the unlikely event an FMI fails.
Content Type(s): Financial System Hub articles, Publications
July 11, 2019
Staff discussion papers

Non-Bank Financial Intermediation in Canada: An Update

Non-bank financial intermediation provides a valuable alternative to traditional banking. We provide an update on the Bank’s monitoring of this area, including insights obtained from new data sources.
Guillaume Bédard-Pagé
Guillaume Bédard-Pagé
Content Type(s): Staff discussion papers, Staff research
March 22, 2019
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