COVID-19: Actions to Support the Economy and Financial System

Support to key financial markets

We are intervening to support key financial markets to ensure they continue to function properly. These interventions include an expanded buyback program for Government of Canada bonds and expanded purchases of Canada Mortgage Bonds (CMBs).

In times of market turmoil, financial institutions may be reluctant to act in their normal role as market makers for bonds and other financial assets. Market makers hold inventories of securities and quote prices at which they will buy and sell—activities that may become prohibitively risky when the prices of these securities are fluctuating widely. Buyers and sellers may then find it difficult to trade—in other words, the market becomes illiquid.

This is particularly problematic in the case of friction in the market for Government of Canada bonds, which are often held as the safest Canadian-dollar asset. Those holding a bond may find it difficult to sell it to obtain cash, while those wishing to buy a bond for its safety may be unable to obtain it. Given the central role of Government of Canada bonds, including as a benchmark for other interest rates, such market illiquidity can have pervasive effects through the financial system. As the liquidity of markets for certain maturities of Government of Canada bonds has been diminished through this period, the Bank of Canada, as fiscal agent of the Government, has expanded a program of buybacks, whereby it offers to purchase less-widely-traded bond issues from investors and sells more-widely-traded ones in return.

Canada Mortgage Bonds (CMBs) are another key financial market in Canada. Financial institutions use CMBs to finance their mortgage lending to Canadian homeowners. The functioning of this market was also becoming impaired amid broader market turmoil. In response, the Bank of Canada introduced a program of purchasing CMBs. This helps provide the means for financial institutions to renew mortgages during this period, as well as supports the flow of credit more generally.

We also launched the Bankers’ Acceptance Purchase Facility (BAPF). The Bankers Acceptance market is one of Canada’s core funding markets and a key source of financing for small- and medium-size corporate borrowers.

In addition, the Bank announced a new program to support the liquidity and efficiency of provincial government funding markets. The Provincial Money Market Purchase (PMMP) program will support a liquid and well-functioning market for short-term provincial borrowing.

See related announcements

News – Bank of Canada