Expansion of Term Repo Operations for balance sheet management purposes

As part of the regular management of the Bank of Canada’s (Bank) balance sheet, the Bank acquires assets to offset its liabilities, which consist mainly of bank notes in circulation and government deposits. The bulk of the Bank’s assets include Government of Canada securities acquired through non-competitive bids at government securities auctions. “Background information on the Bank of Canada’s Balance Sheet” explains the composition and acquisition of the Bank’s assets and liabilities in more detail.

In recent years, the Bank has reduced the amount of Government of Canada securities it purchases at auctions to support liquidity in this market.  As a result, the Bank has expanded the list of assets it can purchase for its balance sheet. For example, the Bank introduced a regular term repo operation in 2015 and last year added federal government guaranteed debt securities issued by federal Crown corporations to the list of securities it can buy. These additional assets have helped reduce the Bank’s participation at auctions to 13% currently from 20% in 2015. These new asset categories also provide the Bank with more options to manage assets on its balance sheet in response to changes in demand for bank notes in circulation.  

Supporting the objectives above, effective immediately, the Bank is introducing a pilot program to accept National Housing Act Mortgage-Backed Securities (NHA MBS) as eligible securities for the term repo program. The pilot will commence with the first operation to be held on September 10, 2019 and remain in place until further notice. NHA MBS are guaranteed by Canada Mortgage and Housing Corporation (CMHC) as agent of Her Majesty in right of Canada. As such, their inclusion in the term repo program is consistent with the current criteria of accepting securities issued and guaranteed by the Government of Canada and Canadian provincial governments. NHA MBS will represent a small share of the overall amount of term repos outstanding and will be conducted as a new transaction separate from current term repo operations. Initial auction sizes will be $500 million. The Bank stated its intention to include NHA MBS in term repo in 2015. This inclusion is now implemented following completion of market consultations and operational system enhancements. See the updated terms and conditions for operational details and the term repos webpage for the list of recent and upcoming operations.

The Bank is also changing the targeted amount of regular term repos on its balance sheet from a fixed range expressed in dollar terms, to an allocation of approximately 10 per cent of the Bank’s financial assets, plus or minus 5 per cent. Currently term repos outstanding are around $10 billion or 9% of the Bank’s financial assets. This change will allow the Bank to have greater flexibility to source a range of high quality assets to support balance sheet management with the evolution of bank notes in circulation.

With these changes, the Bank will maintain its minimum purchase amount of Government of Canada nominal bonds at auctions at 13 per cent for 2019. 

These changes are for balance-sheet management and market well-functioning purposes only and have no implications for monetary policy or the financial stability objectives of the Bank.

For further information, please contact:

Maksym Padalko
Director
Financial Markets Department
Bank of Canada
613 782-7172

Scott Kinnear
Director
Financial Markets Department
Bank of Canada
613 782-7723

Media Relations
Bank of Canada
613 782-8782