The impact of trading flows on Government of Canada bond prices – Bank of Canada
Jul 07, 2025
Introduction
If a market participant, say a hedge fund, were to sell 1% of the total available supply of Government of Canada (GoC) bonds—worth about $11 billion as of December 2024—how much would GoC bond prices drop? Our analysis suggests they could drop by an average of 0.2% over one quarter, which translates to a 2–basis point rise in the yield for 10-year GoC bonds.
Market participants and policy-makers alike need to understand how trading flows—both sales and purchases—affect GoC bond prices. Such insights help make clear how large flows can move markets and how participants within the financial system might behave during periods of stress. For the Bank of Canada (the Bank), this knowledge is particularly useful to:
- assess the market impact of its policy actions
- understand how institutional investors’ trading affects market stability
- monitor potential vulnerabilities in the financial system
Read More: https://www.bankofcanada.ca/2025/07/staff-analytical-note-2025-20/
