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AUSSIE 10-YEAR TECHS

(H1) Fragile Outlook

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Curve Lower, Flatter as Yields Reverse Off Cycle Highs

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Yield Curve Update

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Consolidating

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Probes Key Support

OTTAWA (MNI)

Bank of Canada holdings of federal government bonds climbed CAD6.5 billion this week according to figures published on Friday, taking the total past the quarter trillion dollar mark for the first time.

Federal bond holdings of CAD252 billion come as part of a QE program to buy at least CAD5 billion a week of that debt until the economic recovery is well underway, with the overnight policy rate on hold at 0.25%.

Total balance sheet assets were little changed at CAD527 billion on the week, compared with the record CAD547 billion set in July, as holdings of t-bills and repos declined.

The balance sheet could shrink further in coming months because an announcement Thursday said programs to purchase mortgage bonds and bankers' acceptances will be discontinued later this month as markets stabilize. Last month the BOC also cut back participation at auctions of federal t-bills and provincial government money-market paper.

The central bank still has programs to buy up to CAD50 billion of provincial bonds and CAD10 billion of corporates by May, which like some programs being dialed back haven't been aggressively used. The BOC may keep the provincial program open even if purchases go at a slower pace "given the ongoing macro and fiscal uncertainty" around the pandemic, BMO Capital Markets strategist Benjamin Reitzes wrote in a research note.

The balance sheet was about CAD125 billion before the Covid-19 pandemic emerged. Today's assets are about 26% of second-quarter GDP, a low point as health officials shut businesses and banned large gatherings.