Covered bonds are debt instruments issued by financial institutions that are secured by a pool of assets, primarily uninsured Canadian residential mortgages. Insured mortgages are not permitted to be held as covered bond collateral.

The issuer of a covered bond pays periodic interest and principal to investors, in accordance with the terms set upon issuance.

CMHC is responsible for the administration of the Canadian covered bond framework however the Government and CMHC do not provide any guarantees or backing for covered bond issues.

CMHC introduced the legal framework for covered bonds in 2012. The framework supports financial stability by helping lenders diversify their sources of funding.

Benefits for Canadians:

  • As an alternative source of funding for lenders, covered bonds contribute to the stability of the financial system.
  • A stable and well-functioning housing finance system contributes to economic stability and is important to the health of the Canadian financial system.

Benefits for issuers:

  • Access to an alternative source of funding.
  • Access to a broader investor base as some international investors are restricted from purchasing bonds issued under a non-legislative framework.

Benefits for Investors:

  • Creation of high standard of disclosure for covered bonds for all registered covered bond issuers in Canada that takes into account evolving international best-practices.
  • Under the legal framework, there is now statutory protection for the covered bond investor. This results in increased certainty for investors with respect to the cover pool of collateral in the event of issuer default.
  • Recourse to both the covered bond issuer and to the assets in the cover pool.
  • Access to a public registry including the list of registered issuers; programs and information; a list of suspended registered issuers; and any other information that in the Corporation’s opinion is necessary.
  • A more robust market for Canadian covered bonds as some international investors are restricted from purchasing bonds issued under a non-legislative framework.
Date Published: March 31, 2018