Falling interest rates have led to a decline in Canadian government bond borrowing while US Treasury borrowing continues to surge amid economic resilience, writes Matthew Chessum, director of Securities Finance at S&P Global Market Intelligence.
Despite the backdrop of falling interest rates in both Canada and the US, the dynamics in the securities lending market are telling a divergent story: the value on loan of Canadian government bonds has decreased, while the value on loan of US Treasuries has surged. The reasons for this divergence lie in the contrasting economic outlooks and monetary policy expectations between the two countries, as well as the borrowing strategies that investors are employing.
Borrowers in the Canadian market are scaling back bond borrowing due to limited arbitrage and speculative opportunities, while US Treasuries are being used in a variety of strategies, from short-selling to repo transactions, driven by a more dynamic market environment. The contrast highlights the impact of different macroeconomic conditions and central bank approaches on the securities lending market.