The increasing role of hedge funds in Government of Canada bond auctions

Over the past five years, the volume of Government of Canada (GoC) nominal bonds issued nearly doubled, from $122 billion in 2019–20 to $237 billion in 2024–25 (Bank of Canada 2025a).1 Despite this, the standard metrics of auction coverage and average yield show that GoC bond auctions have continued to perform well. We demonstrate that, starting in 2020, the increased participation of hedge funds at auctions matches the growth in GoC bond issuance. In fact, hedge funds now represent a significant investor class—the largest class after dealers. We find that hedge funds have responded to the higher dollar amount of GoC bond issuance because of their volume-based business models. This higher hedge fund participation—along with the fact they are more willing than other investor types to pay more for these bonds—explains the increased share of hedge funds’ auction allocation. We explain how hedge funds could be more likely than other types of investors to exit the market suddenly. We also show that their increased participation in auctions could strain the capacity of the balance sheets of dealers’ repurchase agreements (repos). This increased participation supports the cost-effective distribution of Canada’s domestic debt. However, it also represents a vulnerability that is important to acknowledge. Our analysis focuses on core bond tenors: 2, 5, 10 and 30 years. We use proprietary GoC bond auction data from 1999 to 2024 and identify the business type of bidders (including hedge funds) using an internal Bank of Canada list based on market intelligence about bidders’ business models.