MNI BRIEF: Canada Defers Any Mortgage Bond Change To Apr 2024

The potential wind-down of the CAD260 billion Canada Mortgage Bond program has been pushed back from this fall to April at the earliest, a decision that should cheer market participants who oppose the move on the grounds it might reduce market liquidity and investor demand.

"If changes will be made to the Canada Mortgage Bonds, they will not apply until April 1st, 2024 at the earliest. This will ensure some market certainty while next steps are determined," the finance ministry told MNI. The government has said it intends to provide an update on the program this fall.

One major issue is whether discontinuing CMBs would deliver a windfall by eliminating the yield premium on mortgage bonds over the cost of selling regular government debt. CMHC warned before the budget that such a move could threaten financial stability and raise costs across the nation's CAD4 trillion debt market. Finance officials provided another briefing estimating a windfall of up to CAD800 million a year. (See: MNI: Canada Warned Ending Mortgage Bonds Could Be Costly and MNI: Canada Could Earn CAD800M/Yr Ending Mortgage Bonds-Memo)

The CMB program began in 2001 to provide stable funding for the housing market. The federal budget mentioned cost savings could be used to fund more housing programs, without giving a specific dollar estimate. Prime Minister Justin Trudeau has signaled more funding for housing may come later this year but that also runs the risk of fanning inflation that's required ten Bank of Canada rate hikes so far. (See: MNI INTERVIEW: Trudeau Must Fix Housing Without Fanning Prices)