Canada backed away from the idea of eliminating its $250-billion mortgage bond program, responding to pressure from investors who wanted the product kept alive.

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Canada Mortgage Bonds are securities issued by the federal government’s housing agency and guaranteed by the government, giving them the highest possible credit ratings, since Canada is rated triple-A by S&P Global Ratings and Moody’s Investors Service. Despite that, the notes trade at a higher yield than Canada government bonds.

In March, Finance Minister Chrystia Freeland floated the idea of winding down the CMB program to reduce costs. But that notion was met with opposition from bond traders and other market participants, who warned that the government would be taking an important pricing mechanism out of the market — with potential unintended consequences, such as higher financing costs for corporate issuers. Some lenders use CMBs to hedge their interest rate risk.

Instead, the government will purchase as much as $30 billion in mortgage bonds, beginning in February, but it will keep the program going. It has recently allowed larger CMB issuance as part of a package of measures intended to try to stimulate the construction of more homes.

Freeland announced a number of other financial sector measures in the government’s fiscal and economic statement on Tuesday, including:

• Canada will introduce a “mortgage charter” that outlines the rules banks must follow when homeowners get into difficulty with their loans. Among them: if a distressed borrower wants to sell their main residence, they won’t have to pay a prepayment penalty on the mortgage.
• The government will explore removing a rule that restricts Canadian pension funds from owning more than 30 per cent of the voting shares of most companies. It’s also going to force large federally regulated pension plans to disclosure more information about where their money is invested. The government says its aim is to “create an environment that encourages and identifies more opportunities for investments in Canada by pension funds.”
• The government plans to introduce legislation to implement so-called “open banking” next year. The new law, once in place, may make it easier for consumers to transfer their financial data between different financial companies. In theory, that should make it easier for smaller firms to compete with large institutions.

— With assistance from Erik Hertzberg.

Bloomberg.com