Fiscal Implications of the Government’s Purchase of Canada Mortgage Bonds

Summary

In February 2024, the Government of Canada started to purchase Canada Mortgage Bonds (CMBs), committing to purchasing up to an annual maximum of $30 billion. This represents as much as half of the yearly issuance limit of $60 billion. As of September 30, 2025, the Government has purchased $50.8 billion worth of CMBs, which represents 48.1 per cent of the total amount of CMBs issued since February 2024.

Historically, CMBs have yielded more than Government of Canada bonds with the same maturity. This spread enabled the Government to finance CMB purchases with debt issued at lower interest rates, thereby generating (net) revenue without increasing net debt. Since the Government’s CMB purchases started in early 2024, however, this yield spread has narrowed, reducing net revenue from subsequent purchases.

Based on our September 2025 Economic and Fiscal Outlook, we analyze scenarios with alternative yield spreads to assess net revenue, or the fiscal impact, from the Government’s CMB purchases over the medium term. Under the scenarios considered, the Government is projected to generate net revenue ranging from $353.4 million to $509.7 million annually by 2030-31.

While additional purchases exceeding $30 billion annually, either by increasing purchases within the current issuance limit, or by raising the issuance limit and purchasing more, could potentially generate additional revenue, program parameters were set after consultation with market participants to preserve the integrity of the CMB market. Further expansion could undermine the role of CMBs as a market-based risk management instrument.

At the same time, gross debt issued to finance CMB purchases is projected to increase by $30 billion annually, reaching $179.3 billion in 2030-31. This additional issuance could place upward pressure on the Government’s overall borrowing costs, reducing or offsetting net revenues from CMB purchases. Moreover, because borrowing is concentrated in shorter-term instruments such as treasury bills and 2-year bonds while purchasing longer-duration assets, the Government is exposed to higher short-term interest rates, which if realized could reduce or offset net revenues from CMB purchases.

Government purchases of CMBs

In the 2023 Fall Economic Statement, the Government announced its intention to purchase up to $30 billion of fixed-rate CMBs annually, starting as early as February 2024, and to increase the annual issuance limit to $60 billion.[^1] As of September 30, 2025, the Government has purchased $50.8 billion in CMBs, nearly half of all bonds issued since February 2024. These include $28.3 billion in 5-year CMBs and $22.5 billion in 10‑year CMBs (Figure 1). The Appendix provides background information on the securitization process and CMBs.

Office of the Parliamentary Budget Officer and Canada Mortgage and Housing Corporation.

Office of the Parliamentary Budget Officer and Canada Mortgage and Housing Corporation.

Fiscal impact

CMB purchases are financed through federal borrowing. Each purchase increases both the Government’s assets and liabilities by the same amount, leaving net debt unchanged but raising gross debt.[^2]

CMBs offer higher yields than comparable Government of Canada bonds, reflecting additional compensation investors require to hold the relatively less liquid CMBs. [^3] Since the Government holds CMBs to maturity it benefits from this premium. Credit risk for CMBs is equivalent to Government of Canada bonds, as Canada Mortgage and Housing Corporation (CMHC) guarantees both interest and principal payments.

For simplicity, in this analysis, we assume the Government follows a maturity-matching strategy.[^4] For example, issuing 5-year bonds to finance the purchase of 5-year CMBs. As such, the fiscal impact, or the net revenue generated, depends on the size of the spread and the scale of purchases. The Government has stated its intention to buy up to $30 billion annually, which will increase the size of the CMB portfolio until the bonds that comprise it mature. Consequently, the fiscal impact of a one-basis-point increase (or decrease) in the average spread across the portfolio cumulates over the medium term as the Government’s stock of CMBs grows (Figure 2).

Further, we assumed that as the purchased CMBs mature they will be used to retire the debt issued to acquire them. In this analysis we assumed that the Government would maintain the size of purchases for 5-year and 10-year bonds for the remainder of 2025, $4.25 billion and $3 billion per quarter, respectively. Beyond 2025 we assumed that the Government would buy $15 billion of 5-year CMBs and $15 billion of 10-year CMBs annually. Under these assumptions, the Government is projected to hold $179.3 billion in CMBs by 2030-31 with a corresponding increase in gross debt.

Office of the Parliamentary Budget Officer.

Office of the Parliamentary Budget Officer.

Data are in fiscal years (2024 corresponds to fiscal year 2024‑25). Similarly, a 1-basis-point decrease in the CMB yield spread would result in a negative fiscal impact of the same magnitude.

Since the Government started to purchase CMBs in February 2024, spreads at the time of issue have declined from 24.0 to 15.0 basis points for 5-year CMBs, and from 39.5 to 32.0 basis points for 10-year CMBs. That said, there have been fluctuations around the trend declines in yield spreads (Figure 3).

Office of the Parliamentary Budget Officer and Bank of Canada.

Office of the Parliamentary Budget Officer and Bank of Canada.

These spreads reflect the difference between the CMB and the corresponding benchmark Government of Canada bond when the CMB is first made available to investors.

The narrowing of the spreads has reduced net revenues from CMB purchases, but their projected path forward is uncertain. As such, under our September 2025 Economic and Fiscal Outlook status quo assumptions, we analyze three scenarios to assess the fiscal impact of the Government’s CMB purchases over the medium-term horizon (Figure 4)[^5]:

• Baseline: CMB yield spreads remain at the same level as the most recent acquisition;[^6]
• Downside: CMB yield spreads continue to decline at the observed pace since February 2024;[^7]
• Upside: CMB yield spreads revert to a higher historical average observed over July 2015 to July 2025.[^8]

Office of the Parliamentary Budget Officer and Canada Mortgage and Housing Corporation.

Office of the Parliamentary Budget Officer and Canada Mortgage and Housing Corporation.

Data are in fiscal years (2024 corresponds to fiscal year 2024‑25). Fiscal years 2023-24 and 2024‑25 are estimates. The projection period covers fiscal years 2025‑26 to 2030‑31.

Under each scenario, the Government continues to generate net revenue annually. In 2030‑31, net revenue is projected to be $509.7 million (upside), $464.7 million (baseline), and $353.4 million (downside). In the 2023 Fall Economic Statement, the Government projected that it would generate $596.0 million in net revenue from the purchase of CMBs in 2028‑29, while we project net revenue of $392.5 million in our upside scenario.[^9]

While additional purchases, either by increasing purchases within the current issuance limit, or by raising the issuance limit and purchasing more, could potentially generate additional revenue, program parameters were set in consultation with market participants to preserve the integrity of the CMB market. Further expansion could undermine CMBs’ role as a market-based risk management instrument. If more CMBs were offered there could be a lack of eligible National Housing Act securities for a given issue. Moreover, increased demand from the Government could further narrow the yield spread.

The ultimate fiscal impact of the CMB program depends not only on CMB yields but also on broader market and interest rate conditions. Gross debt issued to finance CMB purchases is projected to increase by $30 billion annually, reaching $179.3 billion in 2030-31 and representing 7.6 per cent of outstanding federal marketable debt.[^10] This additional issuance could place upward pressure on the Government’s overall borrowing costs, reducing or offsetting net revenue. [^11] Market analyses and swap market evidence suggest that increased borrowing could affect the yield curve, reflecting the fiscal and market impacts of elevated bond issuance.

Furthermore, since borrowing is concentrated in shorter-term instruments such as treasury bills and 2-year bonds[^12] while purchasing longer-duration assets, the Government is exposed to higher short-term interest rates, which could if realized reduce or offset net revenues from CMB purchases.[^13]

Appendix

The securitization process

CMBs are created through a process known as securitization. Securitization allows originators (for example, banks) to pool income-generating assets, such as mortgages, into a reference portfolio, and borrow against them through the sale of debt securities to investors. These securities are backed by the income that is generated by the underlying assets. This transforms illiquid assets into liquid securities and transfers credit risk.

An intermediary (for example, Canada Housing Trust) can be introduced to the process to create a legal separation from originators. This can protect the assets that comprise the reference portfolio should the originator face financial difficulties. It is common that originators continue to service the assets that comprise the reference portfolio.[^14]

Originators and investors both benefit from securitization. It allows originators to make use of resources that would otherwise be tied down in the assets that comprise the reference portfolio. This allows them to expand their operations beyond what may have otherwise been possible without the ability to securitize their assets.

Securitization can also decrease borrowing costs for originators if the assets have better credit ratings than they do. It also facilitates the transfer of the reference portfolio’s credit risk to investors.

For investors, securitization allows them to gain diversified exposure to assets that may otherwise be out of reach. For example, few investors could afford direct and diversified exposure to the mortgage market given the size of the individual assets. It also allows the investor to accept risks that they may be better suited to handle within the composition of their own portfolio.

The lifecycle of a CMB

The process to create a CMB begins with a mortgage being taken out on residential single family, multifamily, or social housing property, which are then insured. These mortgages are pooled into National Housing Act Mortgage-Backed Securities (NHA MBS).

For an NHS MBS to be eligible to become part of a newly created CMB it must fulfill several criteria: (1) the underlying mortgages must be fully insured by eligible mortgage insurers; (2) the underlying mortgages must mature on or before the CMB’s maturity date; and (3) the NHA MBS meet regulatory requirements regarding structure and guarantees.[^15] Eligible NHA MBS can be sold to the Canada Housing Trust (CHT), which issues CMBs to investors. The total size of a given CMB issue may not exceed the supply of eligible NHA MBS.

CHT and its financial advisors gauge market demand when determining the size and parameters of each CMB issue, constrained by the supply of eligible NHA MBS. After the parameters of a given CMB issue are determined, those wishing to purchase the CMBs must act as price takers. This includes the Government, which acquires the CMBs through its fiscal agent, the Bank of Canada. Since January 2015, each CMB issue and re-opening has been fully subscribed, meaning that the amount offered to acquire the CMBs has equaled or exceeded the amount that CHT is issuing.

CHT then establishes several agreements to facilitate the creation of the CMBs. The first is to ensure that CMHC is available to guarantee timely payment of the cash flows that the CMB will pay to investors.

CHT also arranges a series of swap agreements. This enables the conversion of the monthly payments of the NHA MBS to match the CMB’s coupon and principal payments. The fixed rate CMBs that the Government purchased have semi-annual coupon payments, and full repayment of the principal when the bond matures. The income streams of the NHA MBS are reinvested into other eligible assets, with part of the funds being allocated to pay the coupon, and the remainder to pay back the face value of the CMB when it matures.

With the determination of the market demand and the establishment of the necessary agreements CHT can begin selling CMBs to investors, simultaneously using the funds to acquire the eligible NHA MBS, and entering into the guarantee and swap agreements with relevant parties. The CMBs may then be held by the investor until maturity or later sold on the secondary market.