Staff research

We examine how the eight largest Canadian public pension funds managed liquidity during the market turmoil in March 2020. The funds were generally resilient to large demands for liquidity and relied heavily on Canada's core funding markets.

Price controls, or caps, can lead to shortages, as 1970’s gasoline price controls illustrate. One million trades show that the market for borrowing bonds in Canada has an implicit price cap: traders are willing to pay no more than the overnight interest rate to borrow a bond. This suggests the probability of a shortage increases when interest rates are very low.