Breaking News
Get Actionable Insights with InvestingPro+: Start 7 Day FREE Trial Register here
Investing Pro 0
Ad-Free Version. Upgrade your Investing.com experience. Save up to 40% More details

Will Canadian Government Meet Its Treasury Bills Supply Target?

By Dominique LapointeMarket OverviewNov 22, 2018 14:33
ca.investing.com/analysis/will-canadian-government-meet-its-treasury-bills-supply-target-200197913
Will Canadian Government Meet Its Treasury Bills Supply Target?
By Dominique Lapointe   |  Nov 22, 2018 14:33
Saved. See Saved Items.
This article has already been saved in your Saved Items
 

In its debt management strategy for 2018-19 published in February 2018, the Government of Canada (GoC) intended to increase the outstanding amount of treasury bills (T-bills) in the secondary market from a 10-year low of $110.7 billion at the end of 2017-18 to $138.0 billion by the end of this fiscal year (EOY). With the Fall Economic Statement just released and a little more than four months remaining until the end of FY 2018-19, we estimate that the GoC is on track to meet its supply of T-bills target. Since one of the goals of this strategy was to improve secondary market liquidity, we also verified whether liquidity recently improved in the Canadian market for T-bills. Based on our liquidity proxy, we did not uncover evidence that it had.

Since the beginning of FY 2018-19, the outstanding amount of T-bills at month-end increased from $110.7 billion at the end of March 2018 to $133.0 billion at the end of October (see chart 1). For the end of November, we estimate that the outstanding amount of T-bills in circulation will drop to $122.7 billion due to a large number of bills coming to maturity this month ($42.3 billion). This is partly offset by an estimated $32-billion issuance this month, including the November 27th bi-weekly regular auction ($11.5 billion). With only four months left in 2018-19, this puts the GoC somewhat further away from its $138B EOY goal.

Nonetheless, we believe that, based on this year’s auction amounts, the Bank of Canada, which manages the GoC borrowing program and conducts the auctions, is largely on track to reach its objective. Since the beginning of the year, the average amount of 3-month, 6-month and 1-year issued on the regular bi-weekly auctions were $5.9 billion, $2.3 billion and $2.3 billion, respectively (see chart 2). Considering that there are 8 auctions remaining until the end of the fiscal year and assuming that the auctioned amounts by the end of March 2019 correspond to the year-to-date averages, the stock of T-bills would reach $139B. This would represent a small $1B surplus relative to the $138B objective.

While the supply of T-bills unambiguously improved in 2018-19 and is on track to reach the GoC’s objective, it is unclear to what extent the Canadian money market became more liquid. One way to measure short-term liquidity is through the difference between the 1-month T-bill rate and the overnight rate target. This spread can serve as a proxy to measures the strength of demand for short-term T-bills. It suggests that liquidity has deteriorated since the second half of 2017 and has not meaningfully recovered since (see chart 3). Besides, the fact that the return on a 1-month T-bill is lower than the return on the overnight is indicative of strong demand for the former. In fact, in percentage terms, the 1-month/overnight rate target spread has oscillated between -8% and -12% this year, indicating very strong demand for very short-term safe products. The higher financial market volatility generally experienced this year and the uncertainty related to the economic outlook has fostered the demand for T-bills. They are also commonly used as collaterals in repurchase agreements. Hence, it might prove difficult for the GoC to significantly improve liquidity with additional supply when markets forces such as investors’ demand lean against it.

Will Canadian Government Meet Its Treasury Bills Supply Target?
 

Related Articles

Ross Hendricks
The Pandemic Boom Goes Bust By Ross Hendricks - Jan 29, 2022

The Pandemic Boom Goes BustWelcome to the great fiscal hangover. Over the last 18 months, the U.S. economy enjoyed the greatest stimulus infusion of all time. More than $5 trillion...

FactSet Research Systems Inc
Podcast : Financial Market Preview - Friday 28-Jan By FactSet Research Systems Inc - Jan 28, 2022

US equity futures are indicating a flat to slightly lower open as of 05:00 ET. European equity markets broadly lower, following mixed but mostly higher levels in Asia. Fed rate...

Will Canadian Government Meet Its Treasury Bills Supply Target?

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind: 

  • Enrich the conversation
  • Stay focused and on track. Only post material that’s relevant to the topic being discussed.
  • Be respectful. Even negative opinions can be framed positively and diplomatically.
  •  Use standard writing style. Include punctuation and upper and lower cases.
  • NOTE: Spam and/or promotional messages and links within a comment will be removed
  • Avoid profanity, slander or personal attacks directed at an author or another user.
  • Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
or
Sign up with Email