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Macklem On Overnight Markets Seeing "Some Tightness"

CANADA
  • Some attention on Bloomberg headlines from BoC's Macklem at the House Committee that seeing "tightness" in overnight markets, citing demand for bonds pressuring them.
  • We paraphrase his broader remarks below:
  • O/N repos are standard part of operating framework. We haven’t used them for some time because of pandemic disruption and extraordinary tools used. Now things are getting back more to normal we’re using this tool again. We are seeing "some tightness" in overnight markets. There is probably more than one reason for that, but one factor which is global (other central banks seeing similar) is that bond rates went up quite a bit in last couple years and more recently have started to come down. That is increasing demand for those bonds and that has to be funded, some of which in o/n market. We’ve been using o/n repos to keep the actual o/n rate in the market very close to the target overnight rate. This is simply about implementing mon pol.
  • This isn't a new development, with CORRA regularly seeing 4-5bp spreads over the policy rate since mid-October, but it did drift higher still to 7bps yesterday for month-end.

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