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November 16, 2021

ARBITRATORS SPLIT ON MANDATORY VACCINES

Arbitrator decisions in Ontario highlight the importance of employers assessing their mandatory COVID-19 vaccination policies in the specific context of their circumstances, dangers, and hazards associated with the workplace, the applicable collective agreement, and any applicable legislated or regulatory requirements in a separate decision, says a Hicks Morley ‘FTR Now.’ In ‘United Food And Commercial Workers Union, Canada Local 333 and Paragon Protection Ltd.,’ the arbitrator upheld a mandatory vaccination policy based on its reasonableness in the circumstances of that workplace and the unique language of that particular collective agreement. However, in ‘Electrical Safety Authority and Power Workers’ Union,’ the arbitrator’s assessment of the reasonableness of an employer’s mandatory vaccination policy in the specific context of the workplace was the employer’s policy was unreasonable in that employees may be disciplined, discharged, or placed on administrative leave without pay if they did not get fully vaccinated. In arriving at this conclusion, the arbitrator noted that the situation involving COVID-19 is fluid and ever evolving and that circumstances for this employer may change. He also noted that in workplace settings where the risks are high (e.g. involving vulnerable populations) then “mandatory vaccination policies may not only be reasonable, but may also be necessary and required to protect those vulnerable populations.” The arbitrator stated, among other things, that there was no specific provision in the collective agreement which addressed vaccinations, the employer had not previously required employees to be vaccinated, and there was no legislated requirement that the  employees be vaccinated.

November 16, 2021

RATES RESPOND TO HAWKISH BOC

Interest rates in Canada rose sharply in October, especially in the short end of the curve, in reaction to a hawkish Bank of Canada (BoC) monetary policy release on October 27, says Beutel Goodman’s ‘Canadian Fixed Income Report.’ The bank announced that it will end its asset purchase program, which was a bit earlier than market expectations. It also moved up the schedule for when it sees the output gap closing to the middle two quarters of 2022 versus the second half of 2022. The main catalyst for the change was a reduction in the output potential of the economy due to supply chain disruptions and a weaker path for business projections. The earlier closing of the output gap pushed market expectations for the bank’s first rate hike forward by a few months, with some economists floating the possibility of a January hike. Just a few days later, the release of Canadian GDP data put in doubt the Bank of Canada’s schedule. GDP in August was a meagre 0.4 per cent and preliminary data for September suggests GDP will remain flat month over month, putting the annualized run rate at less than two per cent, below the Bank of Canada’s assumptions. On the inflation front, the bank acknowledged that the main drivers – higher energy prices and supply bottlenecks – appear to be stronger and more persistent than previously expected. The bank now expects CPI inflation to remain elevated into next year and ease back to around the two per cent target by late 2022.

November 16, 2021

UK PLANS FACE GILT SHORTAGE

An estimated £450 billion of inflation‐linked liabilities belonging to UK defined benefit pension schemes remain unmatched because of a shortage of long-dated index linked gilts, says an analysis by Alpha Real Capital. The value of private sector UK defined benefit fund liabilities is around £2.2 trillion, of which approximately £1.5 trillion is inflation‐linked. There are only around £800 billion of index-linked gilts, which suggests a shortfall of £700 billion. However, as many schemes use liability driven investment techniques, the portion of inflation‐linked liabilities is around 70 per cent or £1.05 trillion, which leaves around £450 billion of unmatched inflation-linked liabilities. It says this issue could get worse because adding to heightened inflation fears, schemes are moving closer to their endgame faster than expected. Funding levels have fared well and, in many cases, actually improved through the pandemic as a result of the strong performance of risk assets. This means that pension funds not only want to de‐risk, but many more can afford to do so. This means demand for inflation-linked assets remains high. Analysis of the current supply of index‐linked gilts reveals that out of 31, only 14 have a maturity of more than 20 years and only three of these have a maturity greater than 40 years, representing only approximately 14 per cent of the total market value of index‐linked gilts.

November 16, 2021

STABLECOIN RACES TO ATTRACT BACKING

The stablecoin industry is racing to attract institutional backing and achieve greater regulatory clarity by improving disclosure policies and adopting high-quality reserves, says a Coalition Greenwich study. As of September 2021, global stablecoin supply reached $120 billion, the vast bulk of which comes from industry leaders Tether, USD Coin, and Binance USD. Stablecoins are attracting interest and support among a broad group of banks, brokers, exchanges, buy-side firms, and technology companies. These market participants see stablecoins as an ‘on-ramp’ to facilitate the exchange between fiat currency and digital assets. However, the stablecoin industry and infrastructure are still very much a work in progress. Approximately 70 per cent of the crypto market participants participating see regulatory uncertainty as a primary disadvantage for stablecoins. “On the surface, some stablecoins have a composition like money market mutual funds. However, from a regulatory and risk-management perspective, they are anything but ‒ a point not lost on regulators,” says David Easthope, senior analyst for Coalition Greenwich market structure and technology and author of ‘Stablecoins Rock the Boat, Clarity Needed to Calm the Waters.’ Institutions overwhelmingly prefer stablecoins backed 100 per cent by fiat currency, meaning stablecoins that maintain cash in an account backing the issuance.

November 16, 2021

ETFS GATHER INFLOWS

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