on a wide array of financial assets, implying a broad - based easing of financial conditions. the primary instrument in this regard is the app, which compresses the term premia which are incorporated in risk - free interest rates and thereby encourages investors to move up in the maturity and risk ladder and shift to other, non - targeted asset classes. the negative dfr in turn discourages selling agents from hoarding the additional liquidity, speeding up the process of asset reallocation and reinforcing the downside pressure on the long end of the term structure of interest rates. second, via the direct pass - through channel, our package eases borrowing conditions in the real economy by easing banks ’ refinancing conditions and supporting non - financial corporates directly. this channel is perhaps most prominent in the case of the tltros, which through built - in incentive mechanisms ensures that the funding cost benefit is passed on to borrowers. it also applies to our purchases of abs and covered bonds, which encourage banks to increase their supply of loans that can be securitised, and more recently our decision to start a corporate bond purchase programme. in addition, substitution effects induced by the tltros can result in a reduction in the supply of bank bonds, which translates into lower yield on bank bonds for the financial sector as a whole. in parallel, portfolio rebalancing supports this direct pass - through channel, as lower term spreads on public securities encourage a shift in the composition of banks ’ portfolios toward other types of exposures with a higher risk - adjusted return, especially loans. the resulting increase in credit supply lowers its cost. third, via the signalling channel, the policy package triggers a downward revision of market expectations for future short - term interest rates, which aids portfolio rebalancing and direct pass - through effects by further flattening the risk - free curve. in the case of the dfr, our forward guidance that rates will stay at present or lower levels for an extended period of time – and beyond our net asset purchases – tilts downwards the probability distribution of the expected path of future rates. the signalling channel also helps stabilise inflation expectations, thereby preventing an unwarranted tightening in real long - term rates with negative effects on investment and consumption. impact on financial conditions how do we know that these positive effects of our policy package are indeed occurring and that they are sufficiently powerful to achieve the desired outcomes? in terms of financial conditions, the evidence

of august put strong upward pressure on the key overnight rate that we use in the conduct of monetary policy. and so we carried out open market buyback operations to inject liquidity in order to maintain that rate. we also temporarily expanded the list of securities eligible for use by market participants in these buyback operations. all told, our actions in these roles were effective in improving the functioning of the overnight money market. so we have now restored our original list of securities eligible for use in buyback operations, and we have gradually reduced the level of settlement balances. i want to be absolutely clear on one point : the actions that we took to provide liquidity to support the smooth operation of financial markets did not in any way signal a change in our monetary policy. in fact, it was a step in maintaining our monetary policy stance by keeping our target for the overnight rate at 4 1 / 2 per cent, which we judged appropriate for keeping inflation on target over the medium term. but while the overnight market in canada is well on its way back to normal operations, this does not mean that all of the problems in money markets have been resolved. term funding remains somewhat expensive, and the yield spread between bankers'acceptances and treasury bills remains abnormally wide. with respect to the market for asset - backed commercial paper, canada – like other countries – has seen some problems. one specific segment of the canadian abcp market – the market for third - party, or non - bank - sponsored, structured finance, asset - backed commercial paper – has had particular problems. this represents roughly one - third of canada's about $ 120 billion abcp market. at the core of the difficulty are the guarantees of liquidity behind these securities, which differ from the guarantees provided in the united states and europe. canadian third - party abcp tends to include a clause that guarantees liquidity only in the event of a " general market disruption. " many, but not all, of the liquidity providers have declined to step in as this paper has come due, essentially saying that the continued operation of some parts of the commercial paper market indicates that there has not been a general market disruption. efforts to resolve problems in the market for third - party abcp are under way. discussions between investors and liquidity providers – most of whom are international banks – are continuing in montreal. and i remain hopeful that, over time, we will see useful results. the balance of canada's abcp is composed of condu