Size of Bank of Canada Quantitative Tightening

The Bank of Canada, effective April 25, will now let its portfolio of government treasury debt mature.

Over the next two years we have the following maturities, in billions rounded to the nearest $100 million (MBS = mortgage-backed securities):

2022 – total 56.9 (+1.3 MBS)
May – 12.6
June – 3.1 (+0.3 MBS)
August – 16.8
September – 6.8
November – 17.6
December – 0.0 (+1.0 MBS)

2023 – total 88.5 (+1.3 MBS)
February – 17.4
March – 10.8
May – 16.9
June – 6.0
August – 9.1
September – 23.9 (+0.6 MBS)
November – 4.6
December – 0.0 (+0.8 MBS)

Total portfolio – 423.2 (+2.6 MBS)

Observations

Below is the chart of the cash the Government of Canada (their asset) has at the Bank of Canada (their liability):

There is around $98 billion for them, which suggests that liquidity will not be a concern with maturing government debt.

We examine Budget 2022, Table A1.7:

Note the $85 billion cash requirement (despite the $53 billion accounting headline deficit), which the government will have to raise through the fiscal year in addition to the rolling over of near-term debt.

How much will the government raise in gross debt in 2022-2023? Around $212 billion according to this projection:

What a coincidence – May, August and November correspond with when the major components of the QT maturities are arriving this year. Instead of the primary issuers buying the debt and then the Bank of Canada immediately scooping them up, now those institutions will have to actually purchase the government debt with the knowledge that the BoC will not be backstopping it.

How much can the treasury market take before it starts to vomit? We will see!