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Securities financing and Bond Market liquidity

Securities-financing transactions, including repurchase agreements and securities-lending agreements, are essential to market liquidity. They enable dealers to borrow and reuse securities efficiently or to fund purchases of securities. The importance of the securities-financing market for bonds is growing in Canada. Monthly trading volume in the 5-year benchmark Government of Canada bond increased from 5 times its quantity outstanding in 2010 to over 10 times that amount in 2015. The nature of the link between the securities-financing market and bond market liquidity is likely changing as a result of financial sector reforms and the low interest rate environment. The Bank of Canada plays a role in supporting securities financing and will continue to monitor how the market for securities financing is supporting the resilience of the financial system and how this market is adapting to new conditions.