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Repo Operation Usage Steps Higher Again Ahead Of BoC Decision

CANADA
Homepagemarkets-real-timeBulletMarketsFixed Income Bullets Bank of Canada Market News
  • Today saw a fresh recent high for repo operation uptake, up to C$16bn from C$13.4bn yesterday for a fifth consecutive day of usage and each bigger than the last.
  • It comes after signs that the tool (which saw increased dealer and round limits effective Jul 15) might finally have started to cool overnight funding pressures after the CORRA fix stepped 1bp lower to 4.79% yesterday for a +4bp spread to the BoC’s overnight rate.
  • As noted in the MNI BoC Preview (here), the +5bp mostly held at since late June was close to +7bp peak from late January and matched the sustained peak seen through Jan and Feb.
  • The BoC has previously linked these prior overnight pressures to factors other than a need to reduce the pace of QT, including hedge funds drawn to basis trading (charts 3 and 4 here).
  • The Overnight Repo operations and the reintroduction Receiver General morning auctions helped these pressures dissipate ahead of the March BoC meeting.
  • They might have started to again very recently, especially with today’s Receiver General morning auction uptake down to C$2.1bn from C$4.1bn yesterday.
  • However, we still look for at least part of tomorrow’s BoC press conference to explore these funding pressures considering the continued push higher in demand for the repo operation and what it could mean for the current passive approach to balance sheet normalization.

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  • Today saw a fresh recent high for repo operation uptake, up to C$16bn from C$13.4bn yesterday for a fifth consecutive day of usage and each bigger than the last.
  • It comes after signs that the tool (which saw increased dealer and round limits effective Jul 15) might finally have started to cool overnight funding pressures after the CORRA fix stepped 1bp lower to 4.79% yesterday for a +4bp spread to the BoC’s overnight rate.
  • As noted in the MNI BoC Preview (here), the +5bp mostly held at since late June was close to +7bp peak from late January and matched the sustained peak seen through Jan and Feb.
  • The BoC has previously linked these prior overnight pressures to factors other than a need to reduce the pace of QT, including hedge funds drawn to basis trading (charts 3 and 4 here).
  • The Overnight Repo operations and the reintroduction Receiver General morning auctions helped these pressures dissipate ahead of the March BoC meeting.
  • They might have started to again very recently, especially with today’s Receiver General morning auction uptake down to C$2.1bn from C$4.1bn yesterday.
  • However, we still look for at least part of tomorrow’s BoC press conference to explore these funding pressures considering the continued push higher in demand for the repo operation and what it could mean for the current passive approach to balance sheet normalization.