Quick background here... it's generally believed that Canada has a real estate bubble. A Fannie-like entity has been feeding this... CMHC is a "crown corporation" meaning that it reports to the government. CMHC, like Fannie, is a dumping ground for mortgages - it allows banks to get mortgages off their balance sheet. Banks focus on issuing mortgages, and the CMHC - taxpayer - takes the risk.
Common wisdom is that CMHC-backed mortgage debt is as good as federally backed debt; so CMHC debt is stuffed into every pension fund, every bond portfolio in Canada. I disagree, just as I disagreed on Fannie debt.
- CMHC very close to breaching $600 billion portfolio limit
- CMHC is heavily involved in mortgage insurance beyond original mandate
- Banks have been using CMHC to dump more mortgages (not just low downpayment) off balance sheet
- in 2009 CMHC limit was pushed from $450 to $600 billion (10% a year growth)
How about CMHC-backed securitized mortgage bonds (implied federal backstop). As good as treasuries?
10 year government of canada bond = 2.08%
10 year Canada Housing Trust (CMHC) = 2.54%
For perspective that 46 basis point spread is less than provincial bonds but certainly higher than pure federal debt. If the market thought that the government would immediately and automatically repay any CMHC obligation, the spread would be closer to zero.