Canada's Central Bank Turns to Short-Term Debt Ahead of Bond Repayments

Canada's central bank, the Bank of Canada, is gearing up for a wave of bond repayments in August and September by relying heavily on short-term Treasury bills.

A recent note from National Bank of Canada stated that Tuesday's Treasury bill auction totals C$28 billion, which is C$2 billion more than two weeks ago. The bank expects the central bank to buy about C$280 million, roughly 1% of the sale.

Even after C$25.4 billion of bills mature this week, investors will still have to absorb about C$2.6 billion of net new supply, lifting the total amount of bills outstanding to C$309.4 billion by week's end. This is above the C$268 billion target outlined in spring and the highest level since last summer.

The increased demand for T-bills is expected to put pressure on Canada's very front end through the August-September maturity window, potentially leading to higher yields relative to nearby overnight cash-rate alternatives.