The Evolution of the Government of Canada's Debt Distribution Framework
This overview includes a brief history highlighting the government's use of the primary and secondary markets to develop a framework for distributing its debt securities to financial market intermediaries and end investors. The framework is also intended to meet the government's debt-strategy objectives of raising stable, low-cost funding and maintaining a well-functioning debt market. Pellerin reviews the government's adoption of a new framework in 1998 as well as the 2005 modifications aimed at attracting continued broad and competitive participation in government auctions.
Pre-Auction Inventory and Bidding Behavior: Evidence from Canadian Treasury Auctions
Bidders enter the Government of Canada securities auctions with short, neutral, or long pre-auction inventory. We find that bidding strategies and auction performance vary with pre-auction ownership structure. Short and long bidders bid higher average prices, demand larger quantities, and submit fewer bids than do bidders with neutral pre-auction inventory. These bidding strategies imply less underpricing in auctions with aggregate pre-auction inventory tilted in one way or the other. We analyze whether a concern for post-auction short squeeze influences observed bidding strategies and auction performance.
Managing the federal government's cash balances: A technical note
In addition to its primary role as the country's central bank, the Bank of Canada also acts as the federal government's banker and financial adviser. One of the activities associated with this role as fiscal agent is managing the government's Canadian dollar balances. This function is examined in this article. The main priority is to ensure that the government has sufficient cash to meet its daily needs. This requires careful forecasting and monitoring of the government's daily receipt and expenditure flows, as well as an ongoing borrowing program to refinance maturing debt and to replenish the balances during periods when outflows, on average, exceed inflows. The cost of borrowing to raise cash balances for the government is considerably higher than the interest earned on any balances that are available "on demand." To reduce this net cost, balances in excess of those required for daily needs are invested in "term" deposits that earn a higher rate of interest than that earned on the demand balances. The net cost of holding government balances has also been reduced through the use of cash management bills, which are flexible, short-term borrowing instruments that complement the government's regular weekly issues of 3-, 6- and 12-month treasury bills.