TD On Overnight Repo and Still Seeing QT Continue Until Spring 2025

TD on the BoC “raising a few eyebrows” by conducting daily Overnight Repo operations from Jan 3-10 in response to persistently above target CORRA settings, which have since fallen 2bps to 5.03%:

• i) the BoC has “historically had low tolerance for deviations from target. From 2015-2019 the spread from CORRA to target had a standard deviation of 2.3bp, versus 4.1bp for Fed Funds Effective vs the Upper Bound.”
• ii) “we don't think the relatively elevated CORRA levels are due to a shortage of cash in the system", with Lynx balances around $115bn vs the BoC's estimate for steady state for settlement balances at $20-60bn, "though until we have a reasonable amount of experience with the payment system changes set for 2024 those estimates should be taken with a grain of salt. Our base case is still for QT to continue until spring 2025.”
• iii) “we instead attribute the persistent elevation in CORRA to rigidities at banks; given regulatory constraints around funding and leverage, 2bp premiums to CORRA are not enough pull money into the repo market.”