Financial markets
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Liquidity Management of Canadian Corporate Bond Mutual Funds: A Machine Learning Approach
When redeeming shares for investors, bond fund managers must choose a mix of cash and bond sales to honour their commitments. This note uses machine learning algorithms to uncover new patterns in decisions fund managers make to meet redemptions. -
Corporate Debt Composition and Business Cycles
Based on empirical evidence, I propose a dynamic stochastic general equilibrium model with two financial sectors to analyze the role of corporate debt composition (bank versus bond financing) in the transmission of economic shocks. -
Price Caps in Canadian Bond Borrowing Markets
Price controls, or caps, can lead to shortages, as 1970’s gasoline price controls illustrate. One million trades show that the market for borrowing bonds in Canada has an implicit price cap: traders are willing to pay no more than the overnight interest rate to borrow a bond. This suggests the probability of a shortage increases when interest rates are very low. -
The Secular Decline of Forecasted Interest Rates
Canadian interest rates show a secular decline since the 1980s. Long-term survey-based forecasts of interest rates also declined, but less so and were more gradual. Our model-based estimates show an endpoint shifting over time in three phases: a decline between 1990 and 1995, a period of stability between 1996 and 2007, and a further decline since 2008. The current endpoint estimate remains clouded with uncertainty; this is an active area of research. -
Alternative Futures for Government of Canada Debt Management
This paper presents four blue-sky ideas for lowering the cost of the Government of Canada’s debt without increasing the debt’s risk profile. We argue that each idea would improve the secondary-market liquidity of government debt, thereby increasing the demand for government bonds and thus lowering their cost at issuance. -
The Impact of Surprising Monetary Policy Announcements on Exchange Rate Volatility
We identify a few Bank of Canada press releases that had the largest immediate impact on the exchange rate market. We find that volatility increases after these releases, but the effect is short-lived and mostly dissipates after the first hour, on average. Beyond the first hour, the size of the effect is similar to what we observe for other economic releases, such as those for inflation or economic growth data. -
Does US or Canadian Macro News Drive Canadian Bond Yields?
We show that a large share of low-frequency (quarterly) movements in Canadian government bond yields can be explained by macroeconomic news, even though high-frequency (daily) changes are driven by other shocks. Furthermore, we show that US macro news—not domestic news— explains most of the quarterly variation in Canadian bond yields. -
November 5, 2018
Making Sense of Markets
Governor Poloz discusses how the Bank uses financial market information in its monetary policy. -
Have Liquidity and Trading Activity in the Canadian Corporate Bond Market Deteriorated?
Since 2010, the liquidity of corporate bonds has improved on average, while their trading activity has remained stable. We find that the liquidity and trading activity of riskier bonds or bonds issued by firms in different sectors have been stable. However, the liquidity and trading activity of bonds issued by banks have improved. We observe short-lived episodes of deterioration in liquidity and trading activity.