Market functioning

• The Usage of Security Lending Facilities under Unconventional Monetary Policy: Evidence from Sweden

  Staff working paper 2026-9 Marianna Blix Grimaldi, Fabienne Schneider, David Vestin

  This paper examines the interaction between quantitative easing (QE) and the securities lending facility (SLF) using a detailed dataset on Riksbank QE purchases, Swedish DMO SLF transactions and OTC repo deals. A theoretical model further shows how excess demand for assets and search frictions shift the SLF from a backstop to a first-resort tool.

  Content Type(s): Staff research, Staff working papers JEL Code(s): E, E5, E52, E58, G, G2, G21 Research Theme(s): Financial markets and funds management, Market functioning, Market structure, Financial system, Financial institutions and intermediation, Monetary policy, Monetary policy tools and implementation

• Hedge funds and their trading strategies in the Government of Canada bond market

  

  Sparks at Bank article Andreas Uthemann, Adrian Walton

  Hedge funds are active in Canadian government bond markets and help improve market efficiency. But their trading strategies are not well understood. We offer insights into the range of strategies hedge funds use beyond the more commonly known cash-futures basis trade. We also explore the concentration of trading activity among a few large funds.

  Content Type(s): Staff research, Sparks at Bank article Research Theme(s): Financial markets and funds management, Market functioning, Market structure, Financial system, Financial institutions and intermediation, Financial stability and systemic risk

• Transaction Costs, the Value of Convenience, and the Cross-Section of Safe Asset Returns

  Staff working paper 2025-34 Ragnar Juelsrud, Plamen Nenov, Fabienne Schneider, Olav Syrstad

  We study the cross-section of equilibrium returns on safe assets using a tractable asset pricing model with a micro-founded demand for liquidity and multiple safe assets with heterogeneous transaction costs. We test the main predictions of our theory using a novel measure of relative (in)convenience yields in the US Treasury market.

  Content Type(s): Staff research, Staff working papers JEL Code(s): E, E4, E44, G, G1, G12 Research Theme(s): Financial markets and funds management, Market functioning, Financial system, Financial stability and systemic risk, Models and tools, Economic models, Monetary policy, Monetary policy framework and transmission

• The Dealer-to-Client Repo Market: A Buoy on a Swaying Sea

  Staff discussion paper 2025-14 Greg Adams, Evan Dudley, Jean-Sébastien Fontaine, Sofia Tchamova, Andreas Uthemann

  In 2024, the Canadian Overnight Repo Rate Average (CORRA) rose 7 basis points above the Bank of Canada’s target overnight rate as settlement balances declined and hedge fund borrowing increased by $30 billion, straining dealers’ balance sheets. Exercising market power, dealers raised rates, and as client activity grew, these higher rates increasingly influenced CORRAs deviation from target.

  Content Type(s): Staff research, Staff discussion papers JEL Code(s): D, D4, D5, D53, E, E4, E43, E44, E5, E52, G, G1, G12 Research Theme(s): Financial markets and funds management, Market functioning, Market structure, Financial system, Financial institutions and intermediation, Monetary policy, Monetary policy tools and implementation

• Money Talks: How Foreign and Domestic Monetary Policy Communications Move Financial Markets

  Staff working paper 2025-33 Rodrigo Sekkel, Henry Stern, Xu Zhang

  We construct a dataset on Federal Reserve and Bank of Canada non-rate announcement events to provide novel insights into how foreign and domestic monetary policy communications affect the financial markets of open economies. We find that Fed non-rate communications have a stronger impact on long-term interest rates and stock futures, while Bank of Canada communications are relatively more important for short-term interest rates and the exchange rate.

  Content Type(s): Staff research, Staff working papers JEL Code(s): E, E5, E52, F, F3, F31, G, G1, G15 Research Theme(s): Financial markets and funds management, Market functioning, Monetary policy, Monetary policy tools and implementation, Structural challenges, International trade, finance and competitiveness

• A Market-Based Approach to Reverse Stress Testing the Financial System

  Staff working paper 2025-32 Javier Ojea Ferreiro

  This article examines what market conditions lead to extreme losses in global financial systems. Using a reverse stress testing approach, it introduces two measures of systemic risk by starting from the tail losses and working backward to identify the events most closely associated with them.

  Content Type(s): Staff research, Staff working papers JEL Code(s): C, C0, C02, C3, C32, C5, C58, G, G2, G21 Research Theme(s): Financial markets and funds management, Market functioning, Financial system, Financial institutions and intermediation, Financial stability and systemic risk

• Demand-Driven Risk Premia in Foreign Exchange and Bond Markets

  Staff working paper 2025-29 Ingomar Krohn, Andreas Uthemann, Rishi Vala, Jun Yang

  We show how Treasury demand shocks transmit to foreign exchange and bond markets globally. Higher Treasury demand weakens the U.S. dollar and raises foreign bond prices, with effects persisting for two weeks. The transmission varies predictably across countries based on their monetary policy alignment with the United States.

  Content Type(s): Staff research, Staff working papers JEL Code(s): F, F3, F30, F31, G, G1, G12, G15 Research Theme(s): Financial markets and funds management, International markets and currencies, Market functioning, Financial system, Financial stability and systemic risk

• An update on the Canadian money market mutual fund sector

  Staff analytical note 2025-25 Jabir Sandhu, Sofia Tchamova, Rishi Vala

  We examine the Canadian money market fund (MMF) sector and find that it has grown rapidly, holding a large share of treasury bills and commercial paper. Unlike in some other jurisdictions where investor outflows likely amplified stresses, Canadian MMFs experienced inflows during the March 2020 market turmoil.

  Content Type(s): Staff research, Staff analytical notes JEL Code(s): E, E4, E40, G, G0, G00, G01, G1, G2, G23 Research Theme(s): Financial markets and funds management, Market functioning, Financial system, Financial institutions and intermediation, Financial stability and systemic risk

• On-the-run Premia, Settlement Fails, and Central Bank Access

  Staff working paper 2025-19 Fabienne Schneider

  The premium on “on-the-run” Treasuries is an anomaly. I explain it using a model in which primary dealers hold inventories of Treasuries. I use the model to analyze the effects of granting access to central bank facilities.

  Content Type(s): Staff research, Staff working papers JEL Code(s): G, G1, G12, G19, G2, G23 Research Theme(s): Financial markets and funds management, Funds management, Market functioning, Market structure, Financial system, Financial institutions and intermediation

• The impact of trading flows on Government of Canada bond prices

  Staff analytical note 2025-20 Andreas Uthemann, Rishi Vala, Jun Yang

  Trading flows affect Government of Canada bond prices. Our estimates suggest a sale of 1% of the available supply of bonds typically lowers bond prices by 0.2%. From 2000 to 2025, demand from institutional investors, such as Canadian pension funds and foreign investors, explains 69% of quarterly price variation, with the remainder explained by changes in the supply of bonds.

  Content Type(s): Staff research, Staff analytical notes JEL Code(s): C, C0, C01, C3, C36, C5, C58, D, D5, D53, E, E6, E62, G, G1, G11, G12, G2, G23 Research Theme(s): Financial markets and funds management, Funds management, Market functioning, Financial system, Financial stability and systemic risk