The Fed has released its Financial Stability Report for May 2023:
Large banks that were subject to the liquidity coverage ratio (LCR) continued to maintain levels of high-quality liquid assets (HQLA) that suggested that their liquid resources would be sufficient to withstand expected short-term cash outflows.
Prime MMFs and other cash-investment vehicles remain vulnerable to runs and, hence, contribute to the fragility of short-term funding markets. In addition, some cash management vehicles, including retail prime MMFs, government MMFs, and short-term investment funds, maintain stable net asset values (NAVs) that make them susceptible to sharp increases in interest rates. The market capitalization of the stablecoin sector continued to decline, and the sector remains vulnerable to liquidity risks like those of cash-like vehicles. Some open-end bond mutual funds continued to be susceptible to large redemptions because they must allow shareholders to redeem every day even though the funds hold assets that can face losses and become illiquid amid stress. Liquidity risks at central counterparties (CCPs) remained low, while liquidity risks at life insurers appeared elevated.
…
The amount of HQLA decreased across all types of banks over the past year, driven by decreases in reserves and reductions in market values of securities portfolios due to rising interest rates (figure 4.2).
…
Some banks increased their reliance on wholesale funding sources, though banks’ overall reliance on short-term wholesale funding remained near historically low levels (figure 4.3). Even with the declines in HQLA, U.S. G-SIBs’ LCRs—the requirement that banks must hold enough HQLA to fund estimated cash outflows during a hypothetical stress event for 30 days—remained well above requirements.
I was struck by how much the holdings of HQLA have diverged (by size of bank) since the Credit Crunch:
The BoC has announced:
is launching an online public consultation on the features that could be included in a digital Canadian dollar.
The consultation opened today and runs until June 19.
The way Canadians pay for everything from the daily necessities to major purchases is evolving rapidly. As the world becomes increasingly digital, the Bank—like many other central banks—is exploring a digital version of Canada’s national currency.
“As Canada’s central bank, we want to make sure everyone can always take part in our country’s economy. That means being ready for whatever the future holds,” said Senior Deputy Governor Carolyn Rogers.
At this time, a digital Canadian dollar is not needed. And any decision to issue one rests with Parliament and the Government of Canada.
A digital Canadian dollar issued by the Bank would have to be designed to serve Canadians’ needs. That’s why the Bank is holding this online consultation: to understand which features are most important to Canadians. The Bank is also seeking opinions about topics related to a digital dollar, such as:
- how people would likely use it
- what security features are important
- what concerns you have about accessibility and privacy
“We want to hear from Canadians about what they value most in the design of a digital dollar. This will help us make design choices and ensure that it is secure, reliable and meets the needs of Canadians,” Rogers said.
The Bank has been providing bank notes to Canadians for more than 85 years. Cash is a safe, accessible and trusted method of payment that anyone can use, including people who don’t have a bank account, a credit score or official identification documents.
If a digital Canadian dollar is issued in the future, the Bank will continue to provide bank notes for those who want them. Cash isn’t going anywhere.
However, there may come a time when bank notes are not widely used in day-to-day transactions, which could risk excluding many Canadians from taking part in the economy.
It’s also possible that private cryptocurrencies or central bank digital currencies issued by other countries could become widely used in Canada in the future. This could compromise the role of an official, centrally issued currency—the Canadian dollar—in our economy and pose a risk to the stability of our financial system.
A digital Canadian dollar would ensure Canadians always have an official, safe, and stable digital payment option issued by Canada’s central bank.
The Bank will publish a report summarizing this consultation later this year.
For the latest updates on the process, follow us on Twitter, Facebook and Instagram.
Notes for editors
- The following link to the consultation page can be embedded in your stories: https://bit.ly/429uV0M.
- For more information on the Bank of Canada’s work on a digital Canadian dollar, see https://www.bankofcanada.ca/digitaldollar/.
- The public consultation will be accessible on the Bank’s website until June 19, 2023, at 23:59 Pacific time.
- A broadcast-quality video clip of the Senior Deputy Governor is available for download upon request.
Mark Rendell comments in the Globe:
Eleven countries have launched digital dollars, including the Bahamas and Nigeria. Other countries, such as China and India, are conducting large-scale pilot programs.
The idea of CBDCs is not without controversy. Some commercial banks worry that the ability to keep digital money directly at the central bank could undercut commercial bank deposits. The Canadian Bankers Association issued a warning about CBDCs last year, arguing that they could undermine commercial bank funding and decrease competitiveness in the financial system.
Some politicians have also raised concerns about privacy, with electronic money being inherently less anonymous than physical cash. Conservative Party leader Pierre Poilievre has said he would not allow the launch of a CBDC.
I don’t see why a digital dollar would necessarily be held by individuals at the BoC. That sounds like a lot of paperwork for the Bank to me: they’re not set up for it and I don’t see why they should be. I think that direct holdings should be limited to ‘wholesalers’ including, not limited to, the banks. Of course, the banks already issue a pseudo-digital currency with Interac cards and e-Transfers at $1 per transaction with half an hour’s delay, which basically negates all the good that may be brought by the miracles of modern electronics. But if some fintechs and foreign players could be brought in …
What I really want is an extension to my browser, so if I want to read something on the Internet for fifteen cents I can click a button, bang, done. And I want to charge a dollar for access to my publications on the web. And I want to do all this without a $1 interac fee or a 2.5% credit card fee. And no damn fuss, either. Click the button!
The Canaccord management buy-out has stumbled:
Citing an “ongoing regulatory matter” involving one of its foreign subsidiaries, the company said early Monday that required approvals for the $11.25 per share all-cash bid would likely not be received before the bid expires on June 13. Approvals might not even come before the management group’s financing commitments – $825-million from New York-based HPS Investment Partners LLC – expire on August 9, the company said.
More than 50 members of Canaccord’s management team, including chief executive Dan Daviau and board chair David Kassie, comprising the group seeking to take the company private, responded in a separate statement that said “there can be no assurance” that the deal will be completed as a result of the latest developments. If completed, the management group said, new terms and conditions may be required.
The development represents a surprising setback for a deal that was believed to have reached its end game nearly two months ago. In March, all four members of the special committee of Canaccord’s board of directors that was reviewing the buyout offer resigned under pressure from Skky Capital Corp. Ltd., which owns an 8.8-per-cent stake in Canaccord.
I continue to have no faith in the governance of this company, as noted on March 13.
BIS has released a Working Paper by Xiang Fang, Bryan Hardy and Karen K Lewis titled Who holds sovereign debt and why it matters:
Summary
Focus
Sovereign borrowing can help buffer the economy from macroeconomic shocks. This indebtedness can also make a country vulnerable to financial distress. The sharp increase in government spending and debt issuance with the Covid-19 pandemic has brought more urgency to understanding how a government can borrow. Answering this question requires knowledge of who invests in sovereign debt and how these investors may influence sovereign borrowing costs.Contribution
We construct an aggregate data set of sovereign debt holdings by foreign and domestic bank, non-bank private, and official investors for 95 countries over 20 years. We use this database to identify which types of investor increase their holdings of sovereign debt when the sovereign borrows more (and reduce their holdings when the sovereign borrows less). We then examine how the sovereign debt holdings of these investors respond to the yield on that debt. Lastly, we combine these results to show how the composition of investors affects the sovereign’s borrowing costs.Findings
Private non-bank investors, mainly investment funds, increase their holdings of sovereign debt by more than other investors as the sovereign’s total debt expands. They fund nearly 70% of increases in sovereign debt. Further, non-bank investors are the most responsive to changes in sovereign yields. Accordingly, as a sovereign increases its debt, its costs increase faster if non-bank investors are not present.Abstract
This paper studies the impact of investor composition on the sovereign debt market. We construct a data set of sovereign debt holdings by foreign and domestic bank, non-bank private, and official investors for 95 countries over 20 years. Private non-bank investors absorb disproportionately more sovereign debt supply than other investors. Moreover, non-bank investor demand is most responsive to the yield. Counterfactual analysis of emerging market sovereigns shows a 10% increase in debt leads to a 6.7% increase in costs, but an outsize 9% increase if non-bank investors are absent. We conclude that these sovereigns are vulnerable to losing non-bank investors.
The Cleveland Fed has released an Economic Commentary by Ina Hajdini, Edward S. Knotek II, John Leer, Mathieu Pedemonte, Robert W. Rich and Raphael S. Schoenle:
Surveys often measure consumers’ inflation expectations by asking directly about prices in general or overall inflation, concepts that may not be well-defined for some individuals. In this Commentary, we propose a new, indirect way of measuring consumer inflation expectations: Given consumers’ expectations about developments in prices of goods and services during the next 12 months, we ask them how their incomes would have to change to make them equally well-off relative to their current situation such that they could buy the same amount of goods and services as they can today. Using a massive number of survey responses at a high frequency, we show that this measure of indirect consumer inflation expectations has risen sharply since early 2021. Higher inflation experiences correlate with higher indirect consumer inflation expectations across US cities and around the world.
| HIMIPref™ Preferred Indices These values reflect the December 2008 revision of the HIMIPref™ Indices Values are provisional and are finalized monthly |
|||||||
| Index | Mean Current Yield (at bid) |
Median YTW |
Median Average Trading Value |
Median Mod Dur (YTW) |
Issues | Day’s Perf. | Index Value |
| Ratchet | 0.00 % | 0.00 % | 0 | 0.00 | 0 | -0.9750 % | 2,245.0 |
| FixedFloater | 0.00 % | 0.00 % | 0 | 0.00 | 0 | -0.9750 % | 4,305.9 |
| Floater | 10.04 % | 10.16 % | 55,982 | 9.36 | 2 | -0.9750 % | 2,481.5 |
| OpRet | 0.00 % | 0.00 % | 0 | 0.00 | 0 | -0.1348 % | 3,340.8 |
| SplitShare | 5.03 % | 7.43 % | 44,677 | 2.57 | 7 | -0.1348 % | 3,989.7 |
| Interest-Bearing | 0.00 % | 0.00 % | 0 | 0.00 | 0 | -0.1348 % | 3,112.9 |
| Perpetual-Premium | 0.00 % | 0.00 % | 0 | 0.00 | 0 | -0.0871 % | 2,743.7 |
| Perpetual-Discount | 6.22 % | 6.28 % | 47,145 | 13.51 | 34 | -0.0871 % | 2,991.8 |
| FixedReset Disc | 5.82 % | 7.68 % | 86,697 | 11.99 | 63 | -0.0908 % | 2,128.7 |
| Insurance Straight | 6.08 % | 6.20 % | 66,109 | 13.59 | 19 | -0.2239 % | 2,958.1 |
| FloatingReset | 10.49 % | 11.02 % | 47,366 | 8.73 | 2 | 0.1023 % | 2,382.2 |
| FixedReset Prem | 6.94 % | 6.52 % | 336,613 | 12.84 | 1 | 0.1980 % | 2,327.4 |
| FixedReset Bank Non | 0.00 % | 0.00 % | 0 | 0.00 | 0 | -0.0908 % | 2,175.9 |
| FixedReset Ins Non | 5.95 % | 7.23 % | 79,953 | 12.20 | 11 | 0.0565 % | 2,344.2 |
| Performance Highlights | |||
| Issue | Index | Change | Notes |
| BN.PR.K | Floater | -2.20 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2053-05-08 Maturity Price : 11.56 Evaluated at bid price : 11.56 Bid-YTW : 10.38 % |
| CU.PR.I | FixedReset Disc | -1.67 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2053-05-08 Maturity Price : 22.84 Evaluated at bid price : 23.60 Bid-YTW : 6.75 % |
| PWF.PR.L | Perpetual-Discount | -1.45 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2053-05-08 Maturity Price : 20.35 Evaluated at bid price : 20.35 Bid-YTW : 6.32 % |
| IFC.PR.C | FixedReset Disc | -1.36 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2053-05-08 Maturity Price : 17.36 Evaluated at bid price : 17.36 Bid-YTW : 7.58 % |
| BN.PF.B | FixedReset Disc | -1.29 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2053-05-08 Maturity Price : 16.05 Evaluated at bid price : 16.05 Bid-YTW : 8.91 % |
| POW.PR.B | Perpetual-Discount | -1.14 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2053-05-08 Maturity Price : 21.49 Evaluated at bid price : 21.75 Bid-YTW : 6.21 % |
| POW.PR.A | Perpetual-Discount | -1.02 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2053-05-08 Maturity Price : 22.10 Evaluated at bid price : 22.32 Bid-YTW : 6.34 % |
| GWO.PR.N | FixedReset Ins Non | 1.05 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2053-05-08 Maturity Price : 12.48 Evaluated at bid price : 12.48 Bid-YTW : 7.86 % |
| BIK.PR.A | FixedReset Disc | 1.08 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2053-05-08 Maturity Price : 21.94 Evaluated at bid price : 22.50 Bid-YTW : 7.84 % |
| MFC.PR.Q | FixedReset Ins Non | 1.18 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2053-05-08 Maturity Price : 19.78 Evaluated at bid price : 19.78 Bid-YTW : 7.23 % |
| NA.PR.S | FixedReset Disc | 1.34 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2053-05-08 Maturity Price : 17.44 Evaluated at bid price : 17.44 Bid-YTW : 7.76 % |
| BN.PF.I | FixedReset Disc | 1.43 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2053-05-08 Maturity Price : 19.91 Evaluated at bid price : 19.91 Bid-YTW : 8.28 % |
| BIP.PR.F | FixedReset Disc | 1.61 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2053-05-08 Maturity Price : 18.90 Evaluated at bid price : 18.90 Bid-YTW : 8.01 % |
| MIC.PR.A | Perpetual-Discount | 3.52 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2053-05-08 Maturity Price : 20.60 Evaluated at bid price : 20.60 Bid-YTW : 6.66 % |
| RY.PR.M | FixedReset Disc | 3.83 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2053-05-08 Maturity Price : 17.10 Evaluated at bid price : 17.10 Bid-YTW : 7.66 % |
| Volume Highlights | |||
| Issue | Index | Shares Traded |
Notes |
| TD.PF.A | FixedReset Disc | 51,300 | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2053-05-08 Maturity Price : 16.81 Evaluated at bid price : 16.81 Bid-YTW : 7.68 % |
| BN.PF.I | FixedReset Disc | 28,500 | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2053-05-08 Maturity Price : 19.91 Evaluated at bid price : 19.91 Bid-YTW : 8.28 % |
| TD.PF.E | FixedReset Disc | 25,800 | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2053-05-08 Maturity Price : 18.25 Evaluated at bid price : 18.25 Bid-YTW : 7.51 % |
| RY.PR.J | FixedReset Disc | 23,900 | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2053-05-08 Maturity Price : 17.91 Evaluated at bid price : 17.91 Bid-YTW : 7.63 % |
| NA.PR.E | FixedReset Disc | 19,600 | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2053-05-08 Maturity Price : 21.21 Evaluated at bid price : 21.21 Bid-YTW : 6.69 % |
| TD.PF.C | FixedReset Disc | 17,100 | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2053-05-08 Maturity Price : 16.70 Evaluated at bid price : 16.70 Bid-YTW : 7.74 % |
| There were 3 other index-included issues trading in excess of 10,000 shares. | |||
| Wide Spread Highlights | ||
| Issue | Index | Quote Data and Yield Notes |
| CU.PR.E | Perpetual-Discount | Quote: 19.71 – 23.72 Spot Rate : 4.0100 Average : 2.3912 YTW SCENARIO |
| RY.PR.J | FixedReset Disc | Quote: 17.91 – 19.34 Spot Rate : 1.4300 Average : 1.0306 YTW SCENARIO |
| BMO.PR.W | FixedReset Disc | Quote: 16.75 – 17.60 Spot Rate : 0.8500 Average : 0.6097 YTW SCENARIO |
| BIK.PR.A | FixedReset Disc | Quote: 22.50 – 23.20 Spot Rate : 0.7000 Average : 0.5131 YTW SCENARIO |
| CU.PR.I | FixedReset Disc | Quote: 23.60 – 24.09 Spot Rate : 0.4900 Average : 0.3051 YTW SCENARIO |
| BMO.PR.T | FixedReset Disc | Quote: 16.68 – 17.24 Spot Rate : 0.5600 Average : 0.3948 YTW SCENARIO |
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