Canada shelves proposal to eliminate mortgage bond program
Canada backed away from the idea of eliminating its $250-billion mortgage bond program, responding to pressure from investors who wanted the product kept alive.
Canada Mortgage Bonds are securities issued by the federal government’s housing agency and guaranteed by the government, giving them the highest possible credit ratings, since Canada is rated triple-A by S&P Global Ratings and Moody’s Investors Service. Despite that, the notes trade at a higher yield than Canada government bonds.
In March, Finance Minister Chrystia Freeland floated the idea of winding down the CMB program to reduce costs. But that notion was met with opposition from bond traders and other market participants, who warned that the government would be taking an important pricing mechanism out of the market — with potential unintended consequences, such as higher financing costs for corporate issuers. Some lenders use CMBs to hedge their interest rate risk.
Instead, the government will purchase as much as $30 billion in mortgage bonds, beginning in February, but it will keep the program going. It has recently allowed larger CMB issuance as part of a package of measures intended to try to stimulate the construction of more homes.
Freeland announced a number of other financial sector measures in the government’s fiscal and economic statement on Tuesday, including:
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