Monday Market Minute | Dec 06, 2021

Bank of Canada ends net QE purchases as normalization accelerates

What Moved

The Bank of Canada ended its net purchases of Government of Canada bonds, completing the QE taper that had begun in April. The Bank shifted to a "reinvestment only" phase, replacing maturing bonds but no longer adding to its balance sheet. The transition marked the end of the most aggressive monetary stimulus in Canadian history — a program that had expanded the BoC's balance sheet from $120 billion to over $475 billion in 18 months. Despite Omicron uncertainty, the Bank maintained its forward guidance pointing to rate hikes in the "middle quarters" of 2022.

Why It Matters

The end of QE was the final preparatory step before rate hikes. For private market investors, it meant the cost-of-capital floor was no longer being artificially depressed by central bank bond purchases. New deal structures, refinancings, and portfolio valuations needed to reflect a rising-rate baseline. The era of "free money" that had inflated private market valuations, compressed credit spreads, and enabled aggressive leverage was formally ending — even though rates themselves had not yet moved.

Signal to Watch

The BoC's January Monetary Policy Report would include updated projections that likely showed the output gap closing sooner than previously estimated. If so, March 2022 would emerge as the consensus date for the first rate hike — a development that private market portfolios had months, not years, to prepare for.

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