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| Bonds: Steady as She Goes |
| Tuesday, September 22, 2009 |
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Been there, done that is an oft-quoted line about the joys of round-trip tourism. It's also a line that can be used about the terms of the latest issue of Canada Mortgage Bonds, a $7-billion financing that closes on Wednesday. How come? One year after the global credit crisis started, Canada Housing Trust, a special purpose entity of Canada Mortgage and Housing Corp., has issued five-year bonds at the tightest spread to government of Canada bonds for two years. Accordingly if a tourist has been away for the past two years, the old reality is now the new reality. On CHT's latest deal, fixed-income investors were offered a five-year Canada Mortgage Bond -- a security that comes with a government of Canada timely payment guarantee -- featured a 2.75% coupon and a 2.793% yield. At that yield, the bonds were priced at 21 basis points above comparable Canada bonds. It was back in September 2007 that the AAArated issuer last issued bonds at such a narrow spread. Over the past three years, the low-spread occurred in September 2006 when the issuer offered a yield that was a mere 11.7 basis points above Canada bonds. Mark Chamie, CMHC's treasurer, said that consistency and transparency explain the success enjoyed by the program. "With all the volatility over the past while, investors are turning towards stable, consistent programs and product like ourselves. For us , the story hasn't changed." Chamie said after Lehman Brothers went bankrupt one year back, "we didn't waver. We were one of the few issuers in the world at that time that came to market. We kept coming and we continue. Investors were moving to a safe product and we were happy to provide them with that product." He said the plan is to come to the market on a predictable basis. "The market knows that we are going to be regular and as transparent as we can. Investors have told us time and time again that they like the consistency and the transparency," he said. Of course the real objective behind issuing CMBs -- which are backed by pools of residential mortgages insured by the New Home Association--is to produce mortgage rates that are lower, given that the federal government is the lower cost borrower in the country. The CHT issues "ultimately benefits the Canadian home owner. This ensures that they continue to have access to funding for their mortgages." Over the past year, CHT also broad ended the scope of its offerings: Last December it unveiled its first 10-year CMB, a $2-billion offering. Since then it has offered the same 10-year bond (meaning one maturing on Dec. 15, 2018) on two subsequent occasions. The result: There are now $7.75-billion in outstanding bonds for that maturity. "They didn't miss a bet. In fact they added products," noted Grant Berry, a managing director of government finance at RBC Capital Markets, the so-called lead of leads on CHT's latest deal. BMO Capital Markets, CIBC World Markets and TD Securities were the other lead managers on the deal that saw 23% of the issue purchased by foreigners. P.S.: Here are the spreads that CHT has paid for issuing five-year bonds over the past two-plus years: June 2007 (14 basis points); December 2007 (34 basis points); March 2008 (58 basis points); June 2008 (47 basis points); September 2008 (65.5 basis points); December 2008 (59.5 basis points); March 2009 (36.5 basis points) and June 2009 (42.5 basis points.) |
