At the height of last fall's credit panic, Canada Mortgage Bonds traded over 65 basis points above their regular government bond counterparts.

That's significant because, like government of Canada (GoC) bonds, CMBs are supposed to be backed by the government and risk-free.

Things are much better now.  Investors are no longer jittery about Canada's real estate and credit markets like they were 11-12 months ago. In turn, CMB spreads have shrunk back to a 21-basis point GoC premium (much more normal).

That, of course, is welcome news to the mortgage market. Not only are smaller CMB-bond spreads a sign of recovery, but they usually signify improving mortgage rates-particularly with non-deposit-taking lenders who rely heavily on the CMB for funding.