Bank of Canada to Begin Purchasing 10 Year Mortgage Bonds

Steve Saretsky -

The Bank of Canada has announced it will begin purchasing 10 year fixed rate Canada mortgage bonds. Before anyone gets confused, this is not QE (quantitative easing) but rather, it is balance sheet management, where the central bank routinely purchases assets to offset its liabilities, which consist mainly of bank notes in circulation and government deposits.

However, the timing of the announcement suggests a few things. Stephen Poloz and the Bank of Canada have stressed a desire to curb interest rate renewal risks in the housing market. By purchasing 10 year bonds it seems they are attempting to influence the cost of 10 year mortgage debt and should also provide the Bank of Canada more control to mitigate the risks of rising borrowing costs in the event of liquidity issues.

In a recent speech Poloz noted, longer mortgage terms would “mitigate the normal risks in the system both for lenders and for borrowers.” Adding, “More choice for borrowers and more ways for lenders to diversify risks are desirable. To be clear, the system is not broken—it has served Canadians and financial institutions well. But we should not stop looking for improvements.”

While this is all very early stages, it seems there is more discussion taking place around longer duration mortgage terms in Canada. As of today, the Bank of Canada’s own data shows that currently just 2% of mortgages have terms greater than five years. Nearly half were five-year, fixed-rate mortgages which can be anywhere from 0.4% to a full percentage-point cheaper than a comparable ten-year mortgage.


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The Saretsky Report. December 2022