BOC: Deputy Gov Rogers: Not Considering Adjusting Deposit Rates Or Balance Sheet
Asked whether the BOC is considering another technical adjustment to deposit rates given continued strains in funding markets, and how the BOC views CORRA and liquidity in overnight repo markets, Deputy Gov Rogers says they have no plans to make adjustments or tweak balance sheet normalization plans:
- "The thing that's had sort of the most direct effect is we had a big maturity early in September, big bond maturity. And so there was a step down in the amount of liquidity in the markets that's put a bit of strain. I think the markets are still digesting that step down and adjusting we also, you'll recall, in our financial stability report, in May, we talked about a greater presence of foreign hedge funds in the market. They fund on the repo market. They fund government Canada securities on the basis trade. That trade goes, there's a bigger demand for that trade when there's an expected move in in policy rates, as there has been in the last few weeks. So so there's more than one thing affecting overnight markets. We've got a variety of tools that we can use."
- "We're not contemplating any change in the deposit rate right now... Our plan to normalize our balance sheet is still on track. It's the same as we've shared consistently all along. We do expect some of this turbulence as we get down to our steady state settlement balances, but we've got a variety of tools we can use before looking at the deposit rate."
Asked if the BOC might implement QE if the Canadian economy fails to recover, Macklem says: "we're a long way from even contemplating that. We've got considerable room with our policy rate." He says that even in their recessionary scenario published in the July monetary policy report, "I still think we'd be a long way from quantitative easing."
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FOREX: Greenback Pops Into WMR Fix on Volume Spike, Rising Curve
- Greenback picking up into the WMR fix, helping trigger fresh daily lows across EUR/USD, GBP/USD and new daily highs for USD/CAD and USD/JPY.
- USD strength being driven partly by the run higher in the US curve - but also a sizeable uptick in EUR futures at 1047ET/1547BST. ~1000 contracts traded inside two minutes for a cash equivalent of ~$150mln. While the last few minutes have seen activity pick up, overall volumes on the day are very low: EUR futures are close to 30% below average for this time of day.
- While the USD's benefiting from the higher US curve, it's the opposite for GBP. Which is slipping despite a further backtrack in BOE rate cut pricing for 2025 (year-end implied rates now ~3.85%, or pricing just 12bps of rate cuts over the next three meetings).
- No specific headlines or newsflow behind the USD rally in recent trade - with low volumes and light liquidity the suspected driver. We mentioned earlier today the preference for markets to adopt a more neutral setting into Jackson Hole on Friday - evident in last week's CFTC data showing the net short trimmed off multi-year lows.
UK DMO UPDATE: Consultation agenda
The DMO has released the agenda for the consultation to be held Tuesday next week ahead of the release of the Oct-Dec auction calendar (on Friday 29 August at 7:30BST).
- Syndications: A new conventional 15-year gilt in October and a linker (new or existing) in November.
- The DMO has also raised the possibility of dual-tranche syndications (which are not currently held). These are not planned for FQ3, but could be introduced in the future.
- Short auctions (6 auctions): Launch and reopen at least once both a new 3-year gilt and new 5-year gilt.
- Medium auctions (4 auctions): The new 10-year Oct-35 gilt (which will be launched via syndication in the W/C 1 September) to be reopened at least twice in the quarter. The DMO is also welcoming views on a new 7-year gilt.
- Long auctions (2 auctions): Including a reopening of the
- Linker auctions (4 auctions): All existing.
- PGTs (5): 1 short, 1 medium, 1 linker and 2 other conventional (without maturity guidance).
- The next consultation will be held on Monday 24 November, subject to the timing of the Budget.
GILTS: Selloff Persists, Futures Narrow Gap To Support
Today’s selloff in Gilt futures is persisting, now -46 ticks at 90.64 and narrowing the gap to support at 90.59 (May 29 low). The latest Guardian story on stamp duty (see above) appears to have added some fresh pressure. Although details are vague and no final decisions have been made, it is another example of the difficult fiscal backdrop facing the Chancellor ahead of the Autumn budget.
- Gilt yields have registered fresh sessions highs across the curve, currently 3.5-4.5bps higher.
- 30-year nominal yields are testing the 5.60% handle for the first time since May. Meanwhile, linker yields are currently +4bps at 2.541%, the highest since 1998 according to Bloomberg Finance L.P data.
- 5s30s is just shy of Friday’s 148bp high (currently at 147.5bps), but is still at its steepest since 2017.
- UK CPI headlines this week’s regional calendar on Wednesday. MNI’s preview will be released tomorrow morning.
