The Canadian Government recently said it will buy up to $7bn of insured mortgages from financial institutions, which is the second chunk of a C$25bn plan to help banks free up cash for lending and overcome credit market constraints.

Acting through Canada Mortgage and Housing Corp federal agency, Ottawa will purchase mortgage-based securities maturing in 2013 in an auction. It will set up a minimum yield for the transaction to ensure a return on its investment. According to Jim Flaherty, finance minister, the plan will help cushion banks from the global financial crisis and address a scarcity of private-sector lending.

The government bought a first tranche of mortgages worth C$5bn last Thursday. It obtained an average yield of 4.241%, above the minimum target set, suggesting a healthy interest in the auction. However, the number and names of participating institutions was not made public.