"Bank of Canada backs off as credit tensions ease
Reuters
July 08, 2008
Tensions in Canada's money markets have eased enough to prompt the Bank of Canada to suspend operations to get short-term lending back on track, but analysts say it's too early to declare an end to the credit crunch.
The central bank said Tuesday it would sell back $1 billion worth of securities it bought on the market on June 10 instead of rolling them over, citing an improvement in bank funding costs.
This was the second time it has decided to conclude a transaction of this sort, known as a PRA, and it marks the withdrawal of all of the bank's extraordinary help to once-stressed markets.
"The credit crunch came a little bit sooner to Canada than it did elsewhere and it seems to be going away sooner as well," said David Wolf, chief economist and strategist at Merrill Lynch Canada. "The Bank of Canada is, as far as I know, the first of the G7 central banks that is in the process of unwinding its extraordinary liquidity measures."
The news came on the same day that the U.S. Federal Reserve said it might keep open a lifeline to big financial firms past year-end, a sign that credit conditions in the United States are not recovering the same way they are in Canada.
The funding indicator closely watched by the Bank of Canada – the spread between the three-month CDOR (a benchmark for bankers' acceptance notes) and the overnight index swaps – was 29 basis points Tuesday, the lowest level since early August 2007, but not quite at pre-crisis levels of 11 or 12 basis points. At the end of last year, that spread was 79 basis points.
"It's something that's somewhat unique to Canada. That's certainly why the bank has ceased the operations," said Mark Chandler, fixed income strategist at RBC Capital Markets..."
http://www.bnn.ca/news/2106.html
Reuters
July 08, 2008
Tensions in Canada's money markets have eased enough to prompt the Bank of Canada to suspend operations to get short-term lending back on track, but analysts say it's too early to declare an end to the credit crunch.
The central bank said Tuesday it would sell back $1 billion worth of securities it bought on the market on June 10 instead of rolling them over, citing an improvement in bank funding costs.
This was the second time it has decided to conclude a transaction of this sort, known as a PRA, and it marks the withdrawal of all of the bank's extraordinary help to once-stressed markets.
"The credit crunch came a little bit sooner to Canada than it did elsewhere and it seems to be going away sooner as well," said David Wolf, chief economist and strategist at Merrill Lynch Canada. "The Bank of Canada is, as far as I know, the first of the G7 central banks that is in the process of unwinding its extraordinary liquidity measures."
The news came on the same day that the U.S. Federal Reserve said it might keep open a lifeline to big financial firms past year-end, a sign that credit conditions in the United States are not recovering the same way they are in Canada.
The funding indicator closely watched by the Bank of Canada – the spread between the three-month CDOR (a benchmark for bankers' acceptance notes) and the overnight index swaps – was 29 basis points Tuesday, the lowest level since early August 2007, but not quite at pre-crisis levels of 11 or 12 basis points. At the end of last year, that spread was 79 basis points.
"It's something that's somewhat unique to Canada. That's certainly why the bank has ceased the operations," said Mark Chandler, fixed income strategist at RBC Capital Markets..."
http://www.bnn.ca/news/2106.html
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