Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.
Ending Canada's flagship mortgage bonds could be profitable for the government, according to a Finance Department briefing memo obtained by MNI, a message contradicting other advice from the housing agency that runs the program.
The Canada Mortgage Bond program has grown to CAD260 billion since it began in 2001 to provide more stable funding but those bonds carry a 30bp premium over regular government debt that could accomplish the same goal, the memo said.
"We believe that consolidating CMBs could in theory generate up to $800M in revenue per year," said the 10-page memo dated Feb. 27 obtained by MNI through a freedom-of-information request.
The report was the main one prepared in advance of Finance Minister Chrystia Freeland's March 28 budget announcing a consultation about consolidating the mortgage bond program into regular government borrowing. The budget mentioned cost savings that could be used to fund more housing programs, without giving a specific dollar estimate.
SOME DISCUSSIONS REDACTED
The memo didn’t specify who saw the document but parts were exempted under a clause covering advice prepared for officials or a minister. Redacted parts of the memo were titled Pros and Cons, Plan Forward, Communication Plan, Risk Assessment, For Discussion, and another unspecified page was withheld.
Finance Department spokeswoman Caroline Feggans said in response to a request for comment that "consultations on the proposal to consolidate the Canada Mortgage Bonds within the government’s regular borrowing program, including on an implementation plan that would ensure stable access to mortgage financing, will be forthcoming."
Promised cost savings diverge from Canada Mortgage and Housing Corp.'s November memo that said such a move could threaten financial stability and raise costs across the nation's CAD4 trillion debt market. (See: MNI: Canada Warned Ending Mortgage Bonds Could Be Costly)
The CMHC letter to finance department officials cited estimates from a private bank suggesting extra federal borrowing required to take over the mortgage bond program would lift federal yields 10bps. A CMHC spokesman said earlier when asked about that memo it would implement whatever decision the government makes.
Excerpt of document:
Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.