Bank of Canada programs seek to restore liquidity, confidence to markets

In response to the global coronavirus pandemic and the negative economic impacts caused by attempts to contain the disease, global central banks responded with unprecedented monetary policy – both in scope and speed.  Like the Fed and other major central banks, the Bank of Canada announced a series of new programs designed to restore liquidity, funding and confidence to financial markets.

Summary of Bank of Canada (BoC) programs

Program Plan details and benefits

Corporate Bond Purchase Program (CBPP)

  • Announced on April 15.
  • BoC to purchase up to $10 billion of bonds with less than five years to maturity to support the liquidity and proper functioning of the corporate debt market.
  • Helps companies currently challenged by the impact of the COVID-19 pandemic to continue to obtain longer-dated financing in support of their operations.
  • Further details will be available in early May.

Provincial Bond Purchase Program (PBPP)

  • Announced on April 15.
  • The asset manager, on behalf of the BoC, will conduct purchases of eligible in the secondary market.
  • Supports the liquidity & efficiency of provincial funding markets in the face of significant demands for funding as governments implement their emergency measures and businesses & households seek to bridge this difficult period.
  • Launch date and further details will be available in late April or early May.

Provincial Money Market Purchase Program (PMMPP)

  • Purchase up to 40% of each offering of directly-issued provincial money market securities with terms to maturity of 12 months or less.

Commercial Paper Purchase Program (CPPP)

  • Help support the flow of credit to the economy by alleviating strains in Canada's commercial paper markets.

Additional Bank of Canada measures

  • Increasing the frequency of its Term Repo operations to at least twice a week.
  • Activating a Contingent Term Report Facility (CTRF).
  • Launching a USD Term Repo Facility, should the need arise.
  • Coordinated Central Bank Action.

BMO Global Asset Management selected to manage the Provincial Bond Purchase Program (PBPP)

Overview

The Bank of Canada intends to purchase up to $50 billion of bonds with less than 10 years to maturity. The size of this program is significant, comprising nearly 1/6 of the eligible market. Fears surrounding the impact of the coronavirus and impacts to the economy drove spreads wider for spread product in fixed income, including provincials. Provincial budgets are expected to be hit hard by the current crisis, both from increased expenditure and declining tax revenue (particularly for provinces with large energy economies). BMO Global Asset Management is delighted to be selected to support the Bank of Canada with this program.

Market dynamics

The Provincial bond market represents approximately 40% of the Canadian bond market (as per FTSE Russell Universal Index). 

TTM Soverign Provincial Corporate Totals

Short

19.74

7.97

13.13

40.84

Mid

7.71

10.29

5.34

23.34

Long

7.05

20.96

7.81

35.82

Totals

34.50

39.22

26.28

100.00

The PBPP program will focus on short-term (1-5 year) and mid-term (5-10 year) bonds. Provinces likely to issue additional debt given funding needs.

Disclosures

This update has been prepared by BMO’s Fixed Income Team. This update represents their assessment of the markets at the time of publication. Those views are subject to change without notice as markets change over time. The information provided herein does not constitute and construed as a solicitation of an offer to buy, investment, tax or legal advice to any party, an offer to sell securities, nor should the information be relied upon as investment advice. Past performance is no guarantee of future results. The statistics provided in this update are based on information believed to be reliable but not guaranteed. This communication is intended for informational purposes only.

Certain of the products and services offered under the brand name BMO Global Asset Management are designed specifically for various categories of investors in a number of different countries and regions and may not be available to all investors. Products and services are only offered to such investors in those countries and regions in accordance with applicable laws and regulations.

Certain statements included in this material constitute forward-looking statements, including, but not limited to, those identified by the expressions “expect”, “intend”, “will” and similar expressions. The forward-looking statements are not historical facts but reflect BMO AM’s current expectations regarding future results or events. These forward-looking statements are subject to a number of risks and uncertainties that could cause actual results or events to differ materially from current expectations. Although BMO AM believes that the assumptions inherent in the forward-looking statements are reasonable, forward-looking statements are not guarantees of future performance and, accordingly, readers are cautioned not to place undue reliance on such statements due to the inherent uncertainty therein. BMO AM undertakes no obligation to update publicly or otherwise revise any forward-looking statement or information whether as a result of new information, future events or other such factors which affect this information, except as required by law.

BMO Global Asset Management is the brand name for various affiliated entities of BMO Financial Group that provide investment management, retirement, and trust and custody services. BMO Global Asset Management comprises BMO Asset Management Inc., BMO Investments Inc., BMO Asset Management Corp., BMO Asset Management Limited and BMO’s specialized investment management firms. Certain of the products and services offered under the brand name, BMO Global Asset Management are designed specifically for various categories of investors in a number of different countries and regions and may not be available to all investors. Products and services are only offered to such investors in those countries and regions in accordance with applicable laws and regulations.

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