If you want to acquire new-issue bonds, you can do so on the main market, which is normally where the issuer sells them directly to you.
Any bank or investing institution can sell you government bonds. The varying maturities and yields would be highlighted in a prospectus or offering document. During the offering time, you would submit a purchase request to your bank’s investment representative.
Newly issued corporate bonds are rarely available to the general public, as the vast majority are sold to large institutions and banks, who then sell them on the secondary market. You might be able to buy them straight from the underwriting investment bank in an initial bond sale, which is uncommon.
How can I go about purchasing Canadian government bonds?
In Canada, you can buy bonds through your brokerage account or through a financial broker who will buy them directly from the issuing government or firm.
Buying a Bond ETF
A bond fund, such as a bond ETF, is the best option to buy bonds in Canada. Bond funds can invest in corporate or government bonds, short or long-term bonds, or a combination of all three. If you’re overwhelmed by the number of options, a broad market bond fund that includes both local and international bonds of varied terms from firms and governments is a good place to start. A bond ETF is the simplest and most cost-effective way to invest in a wide portfolio of bonds.
To buy shares of a bond ETF, just go to your brokerage account during trading hours, choose the ETF, and buy the number of shares you want to add to your portfolio. Because ETFs are traded on a stock exchange, your order will be filled and the bond fund shares will be added to your portfolio as soon as the transaction is finished. For any other ETF purchase, you will be charged the same commissions as your brokerage account.
So, what exactly is a provincial bond?
Provincial bonds are among the safest investments available, as they are issued by the provincial government. They are backed by the province government’s full faith and credit, and timely payment of the principal and interest is guaranteed.
Provincial bonds offer the following features:
- These bonds are provincial government direct obligation bonds that are secured by the government’s authority to levy and collect taxes.
- Liquidity – On any business day, you can sell a Provincial Bond at its current market value.
- While the amount of your interest will nearly always remain constant, the value of your bond will fluctuate on a daily basis.
Current Rates
Get the most up-to-date information on our current provincial bond rates, as well as our Government Investment Certificates rates (GICs). Find out more.
The issuing province guarantees the payment of principle and interest on these instruments, based on its ability to levy and collect taxes. This does not eliminate the risk of market or interest fluctuations.
Are provinces allowed to issue bonds?
After the federal government, provincial governments and their agencies make up the second largest sector in the Canadian bond market. Provincial governments frequently issue bonds to cover budget gaps for public works and social welfare spending.
How do you go about purchasing government bonds?
Until they mature, Treasury bonds pay a fixed rate of interest every six months. They are available with a 20-year or 30-year term.
TreasuryDirect is where you may buy Treasury bonds from us. You can also acquire them via a bank or a broker. (In Legacy Treasury Direct, which is being phased out, we no longer sell bonds.)
What is the 5-year government bond rate in Canada?
Canadian 5-Year Bond Yield: 1.77 percent Most long-term fixed mortgage rates are based on Canada’s 5-year bond yield. It’s a daily fluctuating essential benchmark in the Canadian bond market.
Is it still possible to purchase Canada Savings Bonds?
The Government of Canada declared in its most recent federal budget, presented on March 22, 2017, that the sale of Canada Savings Bonds (CSB) and Canada Premium Bonds (CPB) will end in November 2017.
On behalf of the Government of Canada, a formal notification was delivered to all Payroll Savings Plan owners and contributors from the Canada Savings Bonds Program.
Until October 2017, your CSB contributions will be taken from your monthly pension.
To learn more about what this announcement implies for bondholders, go to the Canada Savings Bonds Program’s website and look under “Questions and Answers.”
Is the Bank of Canada interested in purchasing provincial bonds?
In March 2020, the Bank of Canada launched an asset buy program to enhance market functioning in the Government of Canada (GoC) bond market, in response to unruly market conditions. The Bank agreed to the following in the Government of Canada Bond Purchase Program (GBPP), which was announced on March 27, 2020:
GBPP purchased all maturities throughout the yield curve to meet their commitments.
The GBPP’s focus shifted from restoring market functioning to delivering additional monetary stimulus through a quantitative easing (QE) program in July 2020. (see Bank of Canada 2020a). It’s crucial to assess the impact of this massive and unprecedented quantity of purchases (about $307 billion as of August 31, 2021) on GoC bond yields, especially given it was the first time the Bank deployed a QE program as part of its extended monetary policy toolkit in Canada.
When we examine the influence of the GBPP announcement in March 2020 on GoC bond yields, we find that:
However, determining the actual impact of the GBPP is challenging because numerous factors influence GoC bond yields. The GBPP, for example, occurred at a time when gross GoC bond issuance tripled. To put it another way, we can’t see or estimate what the level of GoC bond yields would have been if the GBPP hadn’t existed.
Furthermore, because it only measures the surprise component of the GBPP announcement, the yield impact of the initial announcement likely underestimates the impact of the GBPP. The GBPP’s entire impact is anticipated to be greater, given that market participants:
- Because of the initial announcement, you might have been expecting the Bank to announce an asset purchase program.
- the market dysfunction seen in the GoC (see Fontaine, Ford and Walton 2020)
- Market expectations that the Bank would cut the policy interest rate to its effective lower bound of 0.25 percent were also altered.
- They most certainly boosted their estimates of the program’s total expected size later, especially as it transitioned from an instrument aimed primarily at restoring market functioning to one used to deliver further monetary policy stimulus1.
We also look at how GoC bond rates react to the Bank’s daily GBPP bond purchases. D’Amico and King (2013) coined the term “flow effect” to describe this response. On GoC bond yields, we detect a minor and transient flow effect that tends to reverse in the four days following the GBPP operation.
With efficient markets, a little flow effect is expected. That is, the GBPP’s price/yield impacts should reflect new knowledge and altered expectations regarding the volume and type of securities to be purchased over the duration of the program. These expectations may shift over time, although they do not always vary on operating days. As a result, the operations themselves are consistent with a tiny flow effect. These operations give very little new material information that could affect security prices beyond what markets already know from earlier announcements and operations.
Is it possible to lose money in a bond?
- Bonds are generally advertised as being less risky than stocks, which they are for the most part, but that doesn’t mean you can’t lose money if you purchase them.
- When interest rates rise, the issuer experiences a negative credit event, or market liquidity dries up, bond prices fall.
- Bond gains can also be eroded by inflation, taxes, and regulatory changes.
- Bond mutual funds can help diversify a portfolio, but they have their own set of risks, costs, and issues.
Is the income from bonds guaranteed?
The Treasury Department sells Treasury notes through an online auction. There are two possibilities once an investor has purchased the note. The investor has the option of holding the bond until it matures, at which point the initial investment will be repaid. The sum invested is guaranteed to be paid back by the US government if the investor retains the bond to maturity.
Are there municipal bonds in Canada?
Municipal bonds are among the least well-known government securities in Canada, but they also happen to be among the highest-yielding and safest.
Some have excellent AAA ratings, which are nearly non-existent in the corporate market; all have yield premiums over their home provinces’ bonds; and none have defaulted since the 1930s, according to bond raters and investment bankers.
Despite their merits, “Munis” are obscure. According to Stephen Ogilvie, head of Standard & Poor’s Corp.’s municipal bond finance department in Toronto, they account for around 2% of the SC universe bond total return index, Canada’s leading bond index. Institutions often buy the offerings, while underwriters frequently reserve allotments for retail clients.
Munis are uncommon for the same reason that they are appealing, according to Ogilvie: “The reason for the lack of depth in the Canadian municipal bond market as there is in the United States is that Canadian municipalities are debt averse.” Their foreign counterparts, especially those in the United States, borrow significantly more.”
In addition, he points out that, unlike in the United States, where municipal bonds are exempt from certain income taxes, interest on Canadian munis is taxed as ordinary income, just like any other bond. In addition, there is no particular tax structure in place in Canada to provide a tax-free market for municipal bonds.
The traditional culprits in municipal bond purchases are pension funds and life insurance corporations. Because most of the issues are small, thinly traded, and carry premiums for their lack of liquidity, they frequently hold them to maturity. According to an investment banker who works with these bonds, the liquidity premium is usually baked into each offering as a one- or two-basis-point increase in yield. The market may further discount the notes, adding two to six basis points to the built-in premium. However, if you try to sell the majority of the issues, the yield premium you obtained as a buyer will be forfeited to the next bidder, who will be looking for his or her own “illiquidity discount.”
As a result, Canadian munis are keeper species. They also provide good incentives. For example, the Municipal Finance Authority of British Columbia, which manages debt offerings for the province’s municipalities and communities, recently issued a 10-year bond with a 4.338 percent yield to maturity due Oct. 31, 2016. This translates to a yield premium of 31.5 basis points over a June 2015 Canada bond and three basis points over a March 2016 Ontario bond. The entire issue size was $715 million, which included a previous debt issuance. The issuance, which is rated AAA by Moody’s Investors Service Inc. (AA+ by Standard & Poor’s), is an example of the yield and quality offered by the municipal bond market, which rarely offers issues below investment grade.
In contrast to the corporate bond market, where AAA ratings on straight corporate credits are rarely, if ever, issued, a number of Canadian municipalities, including Saskatoon and London, Mississauga, and the regional municipalities of Durham, Peel, and Halton in Ontario, offer a number of AAA credits. Dominion Bond Rating Service Ltd. ranks Toronto’s credit at AA (low), Winnipeg at AA (high), Calgary and Edmonton at AA (high), and Montreal at A. (high).
Although raters disagree on specific grades, all munis that are rated are investment-grade, according to Paul Judson, DBRS’s vice president for Canadian munis.
And, while all three types of bonds are financed by tax revenue that reflects the strength of their respective economies, munis have portfolio values that are quite different from federal and provincial bonds, according to Judson: “The credit quality of municipal bonds rests on the issuers’ taxing powers.” Property taxes, which are more predictable than income tax flows, are available to them. Property taxes are less affected by economic cycles than income taxes, which are used by higher levels of government.”
Furthermore, governments have the authority to seize property if owners do not pay their property taxes, according to Judson. Municipalities also have more leeway in raising taxes than other levels of government. He claims that when the economics of western provinces grow stronger, the security of munis grows.
Munis come in a variety of shapes and sizes. The simplest to analyze is the basic “bullet” bond, which has only one due date. For example, a $100 million City of Toronto issue due September 27, 2016 was priced at issue to yield 4.5 percent, saving 43.3 basis points over a comparable Canada bond. There are also “amortizing” bonds, which are issued in ten-bond series with consecutive due dates. Amortizing bonds can divide a $100 million issuance a reasonable sum in the munis market into ten $10 million bonds, each due one year apart and too little to support much of an aftermarket.
“Taking on less liquidity is rewarded with a higher yield,” says Dave Burner, senior vice president, government finance at National Bank Financial Ltd. in Toronto.
“For a time-specific return, municipal bonds are acceptable for a buy-and-hold strategy,” Judson says. “The concern is whether the yield boost is sufficient to cover the illiquidity.”
“How can you go wrong with a buy-and-hold strategy for high-quality munis, picking up a yield that can be up to 10% more than the yield on a federal bond?” enquires Derek Moran, president of Kelowna, British Columbia-based financial planning firm Smarter Financial Planning Ltd. “If you’re looking for a high yield, munis are a good option, especially if you buy at issue and hold until maturity.” That isn’t a means to make a profit, but it is a terrific way to produce consistent revenue.” IE