Canada Mortgage Bonds

Discussion in 'Trading' started by thisisbabak, Nov 21, 2007.

  1. Can anybody explain why Canada Mortgage Bonds (CMBs) are trading almost 40 bps back of Canadas?

    If I understand correctly, CMBs are direct obligations of the CMHC (Canada Mortgage and Housing Corporation) and carry the full faith of the Government of Canada with respect to timely payments of interest and principal. From a credit perspective, they rank pari passu with respect to Canadas so it would appear that the spread is not attributable to credit. Considering that typical CMB issues are in and around the $8 - $10 billion range (compared to $2 - $4 billion for Canadas) it would seem highly unlikely that liquidity could suddenly dry up. From what I know they are taxed the same as Canadas as well.

    The only thing I can think of is that they have the word "mortgage" in the name, but that should not really be a concern given that they have the same amount of credit risk as Canadas. Am I missing something here?

    For those not familiar with CMBs, you can see a fact sheet here:

    and read more here: