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CANADA: CIBC On Persistent CORRA Slippage

CANADA
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  • CIBC write on continued outsized movements in CORRA relative to the target rate, with slippage in excess of 3bps for “nearly 40.0% of the period since we have moved into T+1 settlement”.
  • They estimate the first instance of “no settlement mismatch between T-Bill supply and maturities will be in mid-December, when both settle on a Wednesday.” There will be a few other instances, “but, it will not be until June 2025 where this settlement mismatch will no longer occur. That is a long time away, and there remains a lot of frictions that will occur until this time.”
  • The mismatch between supply and maturities for bonds is most pressing. “[U]ntil the end of March 2025 there will be C$75.0bn of bond maturities against C$126.0bn of bond issuance. That means settlement balances will fall by just over C$50.0bn by the end of FY24/25. And what we have seen, repeatedly, is that when settlement balances fall below C$100.0bn, funding pressures percolate acutely in the system” [C$117bn currently].
  • “The easiest, and most appropriate, course of action from the BoC is to end QT. That won’t likely happen given recent communications, suggesting a 2025 cessation is still the most likely.”
  • Cash being “raised/redirected to fund SRO demand can be repurposed to either lend directly into repo (putting marginal downward pressure on rates) or broader balance sheet capacity” which they estimate could reduce slippage by as much as 1bp.
  • The market starting to consider when and how many non-standard sized cuts the BoC can deliver is a complicating matter, contributing to “ongoing demand for leveraged GoC positions, keeping repo slippage moving in a similar direction of travel. And, we cannot ignore the ‘root’ cause of all this, which is the ongoing QT program.”
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  • CIBC write on continued outsized movements in CORRA relative to the target rate, with slippage in excess of 3bps for “nearly 40.0% of the period since we have moved into T+1 settlement”.
  • They estimate the first instance of “no settlement mismatch between T-Bill supply and maturities will be in mid-December, when both settle on a Wednesday.” There will be a few other instances, “but, it will not be until June 2025 where this settlement mismatch will no longer occur. That is a long time away, and there remains a lot of frictions that will occur until this time.”
  • The mismatch between supply and maturities for bonds is most pressing. “[U]ntil the end of March 2025 there will be C$75.0bn of bond maturities against C$126.0bn of bond issuance. That means settlement balances will fall by just over C$50.0bn by the end of FY24/25. And what we have seen, repeatedly, is that when settlement balances fall below C$100.0bn, funding pressures percolate acutely in the system” [C$117bn currently].
  • “The easiest, and most appropriate, course of action from the BoC is to end QT. That won’t likely happen given recent communications, suggesting a 2025 cessation is still the most likely.”
  • Cash being “raised/redirected to fund SRO demand can be repurposed to either lend directly into repo (putting marginal downward pressure on rates) or broader balance sheet capacity” which they estimate could reduce slippage by as much as 1bp.
  • The market starting to consider when and how many non-standard sized cuts the BoC can deliver is a complicating matter, contributing to “ongoing demand for leveraged GoC positions, keeping repo slippage moving in a similar direction of travel. And, we cannot ignore the ‘root’ cause of all this, which is the ongoing QT program.”