The Bank also announced it would no longer be purchasing Canada Housing Trust Bonds, judging the market was functioning well enough to no longer require it. The Bank had been purchasing only about $150 million of the bonds per week since July, but the announcement still led to a slight widening in Canada Housing spreads. In addition, the Bank terminated the Bankers Acceptance purchase facility that had not been used since May. One programme that was expanded in October was the Corporate Bond Purchase Program (CBPP). Starting late in the month, buy-side clients joined investment dealers in being able to offer short term corporate bonds to the Bank for potential purchase. The CBPP has been very lightly utilized by the Bank since its inception and the change did not lead to additional purchases. Instead, the addition of buy-side eligibility to participate reflected a realization that, in a crisis, investment dealers might have few bonds to offer the CBPP but be unwilling to purchase additional ones from investors. The CBPP is not designed to provide profitable bids for corporate bonds but rather as a source of liquidity if the market becomes dysfunctional. We registered to participate in the CPPP hoping its use will not be necessary.

U.S. economic data, as in Canada, was not timely enough to show the impact of COVID-19 infection rates surging to record highs across most of the country. The backward-looking data showed a very strong rebound in U.S. GDP during the third quarter that left it only 3.5% lower than at the start of the year. The unemployment rate fell to 7.9% from 8.4% because weaker than expected job creation was offset by a surprise drop in the participation rate as many Americans chose to stop looking for work. No agreement was reached on a new fiscal stimulus package, but the market anticipated that a Democratic Party sweep of the elections hinted at by pollsters would lead to another substantial relief bill.

Internationally, the second wave of COVID-19 cases in several European Union countries intensified, with infection rates in some cases rising above the record levels of the spring. Both France and Germany, the two largest economies in the region, were forced to reimpose national lockdowns to try to contain the pandemic. Economic activity will clearly be negatively impacted during the lockdowns.

The difference between short and long term bond yields increased in October as longer term yields rose more rapidly. In other words, the yield curve steepened. In the month, the yield of 2-year Canada bonds rose only one basis point while 30-year yields increased 14 basis points. The Canadian performance was quite similar the U.S. bond market which saw 2 and 30-year Treasury yields rise 2 and 17 basis points, respectively.

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