Changes in Canada? We have you covered

Canadian banks have issued five benchmark covered bond deals so far this year with a total value of $11.75bn, reinforcing their position as the dominant issuers of US dollar covered bonds. Demand for Canadian covered bonds has remained robust and recently valuations have improved on expectations of diminishing supply. This fundamental value is a function of the strong credit worthiness of Canadian banks and the underlying mortgage collateral which is largely insured by the Canadian Mortgage and Housing Corporation (CMHC), Canada’s national housing agency. The high quality collateral, along with CMHC insurance, gives US investors a lot of comfort and an ability to view these bonds as having minimal credit risk, almost as quasi agency bonds. And with US domestic market supply of agency bonds contracting, investors have had considerable cash to put to work.