MNI POLICY: BOC Gives Details of CAD727M Province Bond Buys

--Also Lays Out Terms For CAD10B Corporate Bond Purchase Plan

By Greg Quinn

     OTTAWA (MNI) - The Bank of Canada said Tuesday it has bought CAD727 million

of provincial government bonds within the first week of the new program to

support local finances amid the pandemic, breaking out each province's share of

the portfolio in a newly expanded public disclosure report. 

     The first four operations from May 7-13 all took up less than the maximum

amount of bonds the BOC offered to buy, according to data published on its

website. The previous report Friday showed CAD229 million of provincial bonds as

balance sheet assets.

     The BOC said each province's share of the program's benchmark portfolio

will be updated monthly. Last week Senior Deputy Governor Carolyn Wilkins said

the allocations are weighted based on a province's GDP and its share of the bond

market.

     On Tuesday the BOC said Ontario would account for 42.3% of the portfolio,

followed by Quebec at 21.8%. Hard-hit energy producing provinces Alberta and

Newfoundland have 12.7% and 1.7%, respectively. The BOC won't buy more than 20%

of a government's outstanding assets and doesn't have a minimum rating

requirement.

     The one-year CAD50 billion program aims at ensuring smooth trading as

governments face record deficits on Covid-19 relief payments and extra

healthcare costs. Experts and former advisers have told MNI the program is

needed in a crisis and questions about moral hazard won't become important in

the short term. The BOC's balance sheet last week grew to a record CAD417

billion. 

     "The Bank of Canada continues to closely monitor global and domestic market

developments and remains committed to providing all the liquidity the financial

system needs so that it can continue to serve Canadians," the BOC said in a

statement.

     --CORPORATE CREDIT PLANS

     The BOC also gave more details for its plan to buy up to CAD10 billion of

corporate bonds, saying "the Bank's purchases will aim to reflect a reference

portfolio based on sectoral shares of eligible assets outstanding."

     The purchases won't be for more than 10% the value of an issuer's

outstanding debt as of April 15, and unlike the provincial program face some

explicit limits on credit ratings. Debt will be eligible if it has "at least one

rating of BBB Mid/BBB/Baa2" as of April 15 when the program was announced.

--MNI Ottawa Bureau; +1 613-314-9647; email: greg.quinn@marketnews.com

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