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Bank of Canada governor Tiff Macklem said heightened demand for bonds is a cause of ongoing liquidity issues in the country’s funding markets.
The Canadian overnight repo rate average, or CORRA, has been stuck above the Bank of Canada’s overnight-rate target for weeks, spurring the central bank to intervene with a series of repo operations. On Wednesday, that spread widened to seven basis points.
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Answering lawmakers’ questions at a parliamentary committee, Macklem said the global bond rally has squeezed funding in overnight markets, as participants rush into fixed income to lock in higher yields ahead of expected declines in interest rates.
“Some of that funding is in the overnight market, so it’s creating some upward pressure,” Macklem said, adding that there’s probably more than one reason for the “tightness” the bank is seeing.
It’s the first time Macklem himself has provided an…
