Initiative aims to provide more liquidity for financial markets and mortgage lenders
The Canadian government and the Bank of Canada have launched a securities lending program for Canada Mortgage Bonds (CMBs) in a bid to improve market liquidity and ensure smooth functioning of the country’s mortgage-backed securities market.
Under the initiative, the government will make its CMB holdings available for borrowing through CIBC Mellon’s securities lending services, using market-based pricing. The move is part of a broader strategy to enhance market efficiency while continuing significant investments in the CMB program.
How the program works
The securities lending program, which began on February 10, allows market participants to borrow the government’s CMB holdings through CIBC Mellon, the selected securities lending agent. The Bank of Canada will publish the daily average amounts on loan for each security on its website, updating figures by the fifth business day of every month.
According to the Bank of Canada, CIBC Mellon was chosen after a detailed review of shortlisted lending agents in the Canadian fixed-income market, ensuring that the program aligns with best practices for market stability.
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This move complements the government’s ongoing strategy to increase participation in the CMB market by purchasing a targeted 50% of fixed-rate CMB primary issuances in 2025, with the Bank of Canada managing the portfolio on its behalf.
Government strengthens role in CMB market
Canada’s mortgage bond market plays a critical role in housing finance, providing lenders with a reliable source of funding. To further support the market, the federal government committed in its 2023 Fall Economic Statement to purchasing up to $30 billion annually in CMBs from 2024 onward, adjusting volumes based on market conditions.
Purchases officially began in February 2024 during the Canada Mortgage and Housing Corporation’s (CMHC) CMB syndication. Since then, the government has fully participated in all fixed-rate CMB syndications, acquiring only five-year and 10-year fixed-rate CMBs through lead underwriters in the primary market. Floating-rate CMBs, however, are not included in the government’s purchases.
The Bank of Canada has launched a dedicated webpage where market participants can access details on upcoming CMB purchases, transaction results, and current government holdings. Any changes or deviations from announced purchase plans will be communicated through market notices.
Canada is also exploring additional measures to strengthen the CMB market. Plans are underway to establish a repurchase agreement (repo) or secured lending facility using government-held CMBs.
Details on this potential secured lending program are expected to be released at a later date.
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