-- Canadian gross treasury bill issuance is rising to $30 billion this week, or $2 billion higher, said National Bank of Canada.
Of that, the Bank of Canada will buy $300 million, or 1% of the tender. Including cash management bills, $31 billion will mature Tuesday, leaving no net new supply for investors, noted the bank. By the end of week, the bill stock will stand at $285 billion.
The government's Spring Economic Update ushered in a downward revision to the bill stock target. By the end
of March 2027, outstanding bills are now expected to settle at $268 billion, stated National Bank. Indicatively, this could be accomplished with average auction sizes of $22 billion.
In reality, auction sizes will differ and they may remain high in the coming months (in part to fund bond maturities
in June, August and September) before easing in the fall, pointed out the bank.
BoC rate hike expectations rebounded since last auction as oil prices rose and markets interpreted the late April decision hawkishly. Indeed, investors keyed on Macklem's quote in the press conference where he threatened "consecutive" rate hikes if oil prices continue to increase, remain elevated and becomes ongoing generalized inflation.
To be sure, this is a risk, added the bank. However, it's clear that this is far from the BoC's base case. As part of the decision, they also provided updated economic and inflation projections. Notably, the central bank revised down its projection for core inflation in 2026.
So, while the BoC acknowledges that overall inflation is set to rise with higher gasoline prices, the central bank sees effectively no "broadening" into non-energy prices. If the conflict doesn't escalate further, the bank should see oil prices gradually moderate, which should help ease hike expectations, added National Bank.
Ultimately, the bank continues to expect the BoC to remain sidelined until 2027 though it's clear the risks are skewed towards earlier tightening.