Sunday, June 21, 2009

Canada Mortgage Bonds Sold

Foreign bond funds are falling for Canadian mortgage bonds.

Canada Housing Trust, a federal government agency, had another successful outing in the capital markets on Tuesday, raising $8-billion from the sale of Canada Mortgage Bonds, known on the Street as CMBs.

These bonds are guaranteed by the Canada Mortgage and Housing Corp, as part of the CMHC’s program to backstop the residential real estate market. The underwriting was led by CIBC World Markets, Merrill Lynch, RBC Dominion Securities and TD Securities.

The latest round of CMB sales featured increasing interest from international investors. Doug Bartlett, head of CIBC’s government finance team, said rise in CMB purchases from outside the country “is reflective of the international investors’ positive view of Canadian government debt.”

The latest CMB offering is five-year debt, sold with 3.15 per cent interest rate. That translates into a 42.5 basis point premium to the comparable government of Canada bond, yet the CMB carried the same triple-A credit rating as the federal government.

Underwriters sold 24 per cent of the bonds outside Canada. U.S. investors bought 17 per cent of this offering, while European and Asian customers each stepped up for just over 3 per cent of the new bonds.

Six months into 2009, the CMB program has seen investors buy $27.3-billion of debt. In all of 2008, CMB offerings totalled $43.5-billion With this week’s issue, the outstanding CMB total $165-billion, of which $154-billion featured fixed rates and $11-billion are floating rate issues.

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