Definition
Canada Mortgage Bonds (CMBs) are debt securities issued by Canada Mortgage and Housing Corporation (CMHC) with the full guarantee of the federal government. They are backed by pools of NHA (National Housing Act) insured mortgages.
Mechanism: financial institutions bundle their CMHC/Sagen/Canada Guaranty insured mortgages into 'NHA pools', sell them to CMHC, which refinances them by issuing CMBs on markets. Institutional investors (pension funds, insurers) buy these CMBs — with federal guarantees — at rates close to government bonds.
Impact: this guaranteed securitization mechanism lowers lenders' financing cost for insured mortgages by 15-40 basis points vs. an unguaranteed bond. This benefit is (partially) passed on to borrowers via lower rates on CMHC-insured loans.