Case study
A Bond for CMHC
by Professor Ian H. Giddy
New York University
The
Canada Mortgage and Housing Corporation has issued a $500
million, AAA US dollar bond on the international markets. The bond pays
3.875% and matures in April 2010. You have been put in charge of
investing the funds temporarily. You are told to invest the money in a
U.S. Treasury bond that approximately matches the maturity of the CMHC
debt. A brief description of the bond may be found here:
cmhc_usd_3.875% bond.pdf
Prices and other details of U.S. Treasury bonds can be found at
bonds.yahoo.com
The bonds listed below were found using yahoo.com's screener tool on the same Yahoo page.
With these data sources, you should be able to decide which bond makes the most sense for CMHC.
Assignments:
- Which bonds offer the best returns? How would you assess the risk of callable features in some of the bonds?
- The money is expected to be invested in a
pool of home loans in 6 to 12 months. Does it make sense to invest the
funds in a 2010-11 bond, or a shorter-term investment? Explain.
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