September 20, 2010-
The market for Canada Mortgage Bonds (CMBs) has jumped to over $189 billion today from less than $10 billion in 2001, and foreigners love ‘em.
Foreign investors love CMBs so much, they bought 37% of last week’s issuance. (25-30% is normal.)
“All kinds of new names are becoming interested in Canada and specifically in housing bonds,” BMO economist Doug Porter told Bloomberg.
This international zeal for our debt has benefits. Most notably, it shrinks the risk premium (spreads) that investors demand from CMBs—when compared with AAA government bonds of the same maturity.
This, in turn, saves Canadians some basis points off their mortgage rates. It’s tough to quantify how much higher spreads would be without foreign buying, but let’s call it 10 basis points for conversation. Ten basis points on a $200,000 mortgage buys about 80 coffees a year—not enough to retire on, but enough to say: “Thanks Europe & Asia.”