(from Canadian Mortgage Trends)
The rate you pay on your mortgage largely depends on what it costs your lender to raise capital. That’s why RBC’s latest covered bond issuance is noteworthy.
RBC issued $2.5 billion worth of covered bonds on September 12.
(Covered bonds are bonds backed by both the issuer’s credit and a pool of mortgages, in this case RBC’s mortgages. If the lender/issuer goes under, investors can still rely on the mortgages to get their money back. Canadian banks sell covered bonds to generate funds to lend out as mortgages.)
RBC’s issuance was the world’s first SEC-registered covered bond, meaning it could be bought by U.S. mom and pop investors for the first time. This huge pool of buyers makes the bonds easier to trade and less expensive to issue.
Why does any of this matter? It matters because these covered bonds will lower RBC's funding costs, and the savings can theoretically be passed on to borrowers.
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