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Price Caps in Canadian Bond Borrowing Markets

Author

Listed:
  • Léanne Berger-Soucy
  • Jean-Sébastien Fontaine
  • Adrian Walton

Abstract

Price controls, or caps, can lead to shortages, as 1970’s gasoline price controls illustrate. One million trades show that the market for borrowing bonds in Canada has an implicit price cap: traders are willing to pay no more than the overnight interest rate to borrow a bond. This suggests the probability of a shortage increases when interest rates are very low.

Suggested Citation

  • Léanne Berger-Soucy & Jean-Sébastien Fontaine & Adrian Walton, 2019. "Price Caps in Canadian Bond Borrowing Markets," Staff Analytical Notes 2019-2, Bank of Canada.
    • Handle: RePEc:bca:bocsan:19-2
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    References listed on IDEAS

    as
    1. Jean-Sébastien Fontaine & James Hately & Adrian Walton, 2017. "Repo Market Functioning when the Interest Rate Is Low or Negative," Discussion Papers 17-3, Bank of Canada.
    2. Maddala, G S, 1983. "Methods of Estimation for Models of Markets with Bounded Price Variation," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 24(2), pages 361-378, June.
    3. Jean-Sébastien Fontaine & James Pinnington & Adrian Walton, 2017. "What Drives Episodes of Settlement Fails in the Government of Canada Bond Market?," Staff Working Papers 17-54, Bank of Canada.
    4. Chanda, Anup & Maddala, G. S., 1983. "Methods of estimation for models of markets with bounded price variation under rational expectations," Economics Letters, Elsevier, vol. 13(2-3), pages 181-184.
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    Citations

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    Cited by:

    1. Jean-Sébastien Fontaine & Jabir Sandhu & Adrian Walton, 2019. "Relative Value of Government of Canada Bonds," Staff Analytical Notes 2019-23, Bank of Canada.
    2. Jean-Sébastien Fontaine & Adrian Walton, 2020. "Contagion in Dealer Networks," Staff Working Papers 20-1, Bank of Canada.
    3. Mariana Khapko & Marius Zoican, 2020. "How Fast Should Trades Settle?," Management Science, INFORMS, vol. 66(10), pages 4573-4593, October.

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    More about this item

    Keywords

    Financial markets;

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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