Bank of Canada bolsters support for key funding markets

Central bank also says it "stands ready" to support the Canada Mortgage Bond market

Bank of Canada bolsters support for key funding markets
Duffie Osental

The Bank of Canada has announced new measures to expand the range of securities it’s willing to purchase, as well as provide support to the Canada Mortgage Bond (CMB) market.

In a statement, the BoC said that it will broaden eligible collateral for its term repo facility to include the full range of collateral eligible under the Standing Liquidity Facility, with the exception of the non-mortgage loan portfolio. According to the bank, the expansion of eligible collateral will provide support to funding conditions for financial institutions by providing a backstop to regular private funding.

The bank also announced that it “stands ready, as a proactive measure,” to provide support to the CMB market so that this important funding market “continues to function well.”

Read more: Bank of Canada cuts overnight rate again

“This would include, as required, purchases of CMBs in the secondary market,” the BoC said. “This is similar in spirit to the increase in Government of Canada bond buybacks that was announced last week to support market liquidity and price discovery. Further operational details, including the effective date, will follow.”

The moves are part of the BoC’s “concerted action” to support the Canadian economy during this period of economic stress brough about by the COVID-19 pandemic.

“Our measures will help ensure that financial institutions can continue to extend credit to both households and businesses,” the BoC said. “The bank continues to closely monitor global market developments and remains committed to providing liquidity as required to support the functioning of the Canadian financial system.”