Mortgage bond spreads tighten as borrowing costs dip

Mortgage bond spreads tighten as borrowing costs dip

Canada Housing Trust's borrowing costs are dipping to levels last seen in late 2007, Business Week recently reported, with the financing arm of CMHC selling almost $6 billion in Canadian mortgage bonds at the lowest relative yields since before the credit markets seized to international investors.

During the recession spreads have ranged from 21 to 65.5 basis points, Business Week said, but the debt is now priced to yield 18 basis points above Canada's 2.5 per cent bonds maturing in June 2015.

This means that it is the lowest spread on a new Canada housing issue since June 2007, when the agency paid a spread of 14 basis points. As the country has seen in the past year, Canada's mortgage rates are at record lows, prompting a spike in home sales and prices. 

"The end beneficiary is not necessarily the government but those people taking out mortgages," Warren Lovely, a strategist at Canadian Imperial Bank of Commerce in Toronto, told Business Week.
CIBC, Bank of America Merrill Lynch, BMO Capital Markets and RBC Capital Markets are joint lead underwriters for the latest quarterly sale of bonds.

Canada Housing Trust issued C$46.9 billion in mortgage bonds last year, up about eight per cent from the C$43.5 billion a year earlier, Lovely said, and the trust has about $175 million of debt outstanding.