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CIBC Still See Very High Risk Of Earlier End To QT

CANADA
  • CIBC write after Gravelle's QT speech that “The risk of an earlier end to QT is still very high in our view, but it is clear we need to see much more persistent deviations in CORRA from target AND more take-up of other liquidity facilities including the RG and OR before this is more of a reality.”
  • “We remain concerned about the Bank’s view that QT itself is not responsible for CORRA slippage. The Bank cited increased demand for bonds on expectations that policy would be eased aggressively, in addition to more financing required for basis trades” but CIBC reject both of these views.
  • Instead, “we continue to view the proximate source of pressure as a compositional issue related to reserve ownership. Simply put, too few DSIBs own too many reserves.”
  • “This should continue to weigh on swap spreads in isolation, and should do very little to the non-SRO bonds in the interim. If, and when, the Bank decides to purchase bonds in the secondary, that is when benchmark cheapness (and building benchmarks) should start to provide more RV opportunities.“
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