TD picked to lead Bank of Canada’s $10-billion corporate bond buying program

The Bank of Canada has chosen TD Asset Management to run its $10-billion corporate bond buying program, aimed at improving liquidity in the market for investment-grade debt.

TD will be responsible for buying Canadian corporate bonds on the secondary market on behalf of the central bank. Bonds eligible for the program must have a minimum credit rating of BBB and have a remaining maturity of less than five years.

The program, which is expected to start in early May, is part of a broader effort by the central bank to prevent the financial system from seizing up.

Since the COVID-19 pandemic began disrupting financial markets in March, the Bank of Canada has targeted a number of systemically important areas – including the markets for Canada mortgage bonds, banker’s acceptances and provincial bonds – to ensure credit keeps flowing.

If buyers retreat and a secondary market – where previously issued securities are traded among investors – becomes illiquid, it is harder and more expensive to raise new money. By stepping in as a major buyer, the Bank of Canada hopes to provide liquidity, bring down spreads and enable new debt issuance.

“A liquid and efficient market for Canadian-dollar corporate bonds allows companies, currently challenged by the impact of the COVID-19 pandemic, to continue to obtain necessary longer-dated financing to support their operations, ultimately aiding the Canadian economy,” the Bank of Canada said in a news release on Monday.

The central bank selected TD to run its corporate bond program "based on their capacity to quickly and effectively establish and manage this program, and their robust conflict of interest policies and processes,” it said.

BMO Global Asset Management was chosen last week to manage the central bank’s $50-billion provincial bond buying program.