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BOC start QE?
November 24, 2018
6:32 pm
Brimleychen
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https://www.bankofcanada.ca/2018/11/expansion-assets-bank-canada-will-acquire-balance-sheet/
...
As part of these changes the Bank plans to allocate a small portion of its balance sheet for acquiring federal government guaranteed securities by purchasing Canada Mortgage Bonds.
...

Quietly QE in Canadian Verson

November 25, 2018
7:53 am
Kidd
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Okay.... as you may know, "my glass is always completely empty" so i saw nothing positive in the article link.

I read the article and i saw the words, "lipstick on a pig." The bank of canada is going to buy mortgage debt, in the form of mortgage bonds? They like to buy securities to offset their liabilities, and these securities are going to be... deadbeat MORTGAGE DEBT? These bonds will be bought in a non competitive market place, meaning... no one of any intelligence would ever touch them.

So... we are buying bad paper to cover our liabilities?

Bill, Norman, Loonie.... what am i missing here?

Peter... you need to turn the automatic deletion of all my posts, off. sf-surprised

November 25, 2018
10:09 am
Norman1
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It doesn't matter if the mortgages behind the Canada Mortgage Bonds are deadbeat. The Canada Mortgage Bonds are guaranteed by CMHC. This is from CMHC’s Guarantee of Canada Mortgage Bonds:

Canada Mortgage Bonds issued by Canada Housing TrustTM No. 1 (the “Issuer”) are fully guaranteed as to timely payment of principal and interest by Canada Mortgage and Housing Corporation (“CMHC” or the “Guarantor”) as agent of Her Majesty in right of Canada (the “CMHC Guarantee”).

The CMHC guarantee is actually stronger than the CDIC backing of deposits. CMHC guarantees not only the principal and interest but also the timely payment of them. CDIC does not guarantee timely payment.

November 25, 2018
10:49 am
Loonie
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Norman1 said
CMHC guarantees not only the principal and interest but also the timely payment of them. CDIC does not guarantee timely payment.  

Excellent point, Norman.
My dad waited many months back in the '80s to get his money out of CDIC.

I'm sure someone will correct me if I'm wrong, but I believe these bonds are fully backed by the govt, and thus not subject to CDIC insurance limits.

November 25, 2018
11:40 am
Top It Up
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SWEET ... Finance Minister Morneau giving instructions to the Bank of Canada ... the Liberals truly are a slippery slope government.

November 25, 2018
12:20 pm
Norman1
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Loonie said

I'm sure someone will correct me if I'm wrong, but I believe these bonds are fully backed by the govt, and thus not subject to CDIC insurance limits.  

Canada Mortgage Bonds are not deposits. They are marketable bonds issued by Canada Housing Trust.

Canada Mortgage Bonds can be traded through investment dealers like other bonds. For example, Canada Mortgage Bond Series 86 (2.55% coupon, maturing 2023-Dec-15) last traded at 99.62% of face value, giving a yield-to-maturity of 2.63%.

November 25, 2018
12:29 pm
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CMHC allocates close to $20 million for more affordable homes in Winnipeg

Canada Mortgage and Housing Corporation (CMHC) recently announced the construction and funding of 95 new rental housing units in Winnipeg, in an effort to provide more affordable homes to middle-class families.

"Through the National Housing Strategy, more middle-class Canadians - and those working hard to join it - will find safe, accessible and affordable homes in communities where their families can thrive and children learn and grow. This investment is wonderful news for the Winnipeg middle-income families that will move into these new affordable rental housing units,” said The Honourable Jean-Yves Duclos, Minister of Children, Families and Social Development.

https://www.whichmortgage.ca/article/cmhc-allocates-close-to-20-million-for-more-affordable-homes-in-winnipeg-251007.aspx

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Expect plenty more of these redistribution of wealth project announcements leading up to next year's federal election - this is just Morneau getting the early jump on the BoC instructions to aide and abet the plan.

January 2, 2019
10:05 am
Brimleychen
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QE formally started...

The Bank Of Canada Officially Began Buying Canadian Mortgage Bonds

Canada’s central bank has officially started to help out with mortgage liquidity. The Bank of Canada (BoC) announced their intention to buy Canada Mortgage Bonds at the end of November. The Bank bought nearly quarter of a billion of the bonds less than three weeks later.

WTF Is A Canada Mortgage Bond?
Canada Mortgage Bonds (CMBs) are bonds used to fund mortgages, and guaranteed by the CMHC. Investors buy the bonds, and lenders use the cash to lend to mortgage borrowers. Since the CMHC (and the Government of Canada) guarantee them, they’re a very secure investment. Secure investments pay relatively low yields, making them a cheap mortgage funding vehicle.

Investors get a secure investment. Mortgage lenders get access to cheap money. It’s a perfect match, and it translates to easier and cheaper credit for homebuyers. A win for investors, lenders, and homebuyers. One problem – we don’t have an unlimited number of investors to drive credit growth forever. When those start to dry up, credit begins to tighten. That’s where an unusual move from the BoC came in.

Bank Of Canada Announced They Will Buy CMBs In November
The BoC is buying CMBs as a part of an expansion of their asset buying program. They noted at the end of November, there is “no implications for monetary policy and financial stability objectives of the Bank.” Buying these bonds doesn’t expand the central bank’s balance sheet. Instead, they’re buying CMBs to help offset the Bank’s liabilities – mostly circulating currency. Theoretically, there should be no major change to inflation or interest rates.

The BoC Bought $250 Million Worth Of CMBs Just 20 Days Later
Just 20 days after announcing the intention to buy CMBs, the BoC became a major buyer of the bonds. The central bank bought $250 million worth of CMBs at the December 13 auction, with a coupon of 2.55%. That’s about 4.5% of the total value of the auction, making them a significant buyer… less than a month after expressing their intention to buy.

What’s The Big Deal?
Most people are confusing no implications with monetary policy, with no big deal. That’s not the case, and it’s a move that should be watched closely. It doesn’t expand the balance sheet, so it’s not a form of quantitative ease. It does however increase liquidity for CMBs, but demand for new mortgage credit isn’t all that high.

Right now, they’re buying when Canadian mortgage credit growth is falling to multi-decade lows. If things are so good with credit liquidity, why is the BoC helping fulfill minuscule growth?

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