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.
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.”
Where can you purchase bonds?
Purchasing new issue bonds entails purchasing bonds on the primary market, or the first time they are released, comparable to purchasing shares in a company’s initial public offering (IPO). The offering price is the price at which new issue bonds are purchased by investors.
How to Buy Corporate Bonds as New Issues
It can be difficult for ordinary investors to get new issue corporate bonds. A relationship with the bank or brokerage that manages the principal bond offering is usually required. When it comes to corporate bonds, you should be aware of the bond’s rating (investment-grade or non-investment-grade/junk bonds), maturity (short, medium, or long-term), interest rate (fixed or floating), and coupon (interest payment) structure (regularly or zero-coupon). To finalize your purchase, you’ll need a brokerage account with enough funds to cover the purchase amount as well as any commissions your broker may impose.
How to Buy Municipal Bonds as New Issues
Investing in municipal bonds as new issues necessitates participation in the issuer’s retail order period. You’ll need to open a brokerage account with the financial institution that backs the bond issue and submit a request detailing the quantity, coupon, and maturity date of the bonds you intend to buy. The bond prospectus, which is issued to prospective investors, lists the possible coupons and maturity dates.
How to Buy Government Bonds as New Issues
Government bonds, such as US Treasury bonds, can be purchased through a broker or directly through Treasury Direct. Treasury bonds are issued in $100 increments, as previously stated. Investors can purchase new-issue government bonds at auctions held several times a year, either competitively or non-competitively. When you place a non-competitive bid, you agree to the auction’s terms. You can provide your preferred discount rate, discount margin, or yield when submitting a competitive offer. You can keep track of upcoming auctions on the internet.
What kind of bonds are available in Canada?
Fixed income securities come in a variety of shapes and sizes, each with its own set of considerations for investors. Here are a few examples:
An investor makes a loan to an issuer in the form of a bond. In exchange, the issuer agrees to pay the investor a fixed rate of interest (the coupon) every six months and to redeem the bond’s principal (or face value) at a later date. Governments and corporations are the most common bond issuers.
Investors can choose from a variety of various types of bonds, including:
Bonds are issued by the federal, provincial, and municipal governments to pay deficits or raise money for program spending. Maturity terms typically run from two to thirty years, with interest paid semi-annually. The most popular bond issuance have maturities of five, ten, and thirty years.
- Credit ratings vary depending on the province’s taxing capacity and the debt’s creditworthiness.
- Credit ratings vary depending on the municipality’s taxing capacity and the debt’s creditworthiness.
- Depending on specific issues and liquidity, may provide greater or lower yields than provincial issues of comparable grade.
Corporate bonds are obligations issued by businesses in order to raise funds for operations and initiatives. Debt-issuing companies are given a rating based on their financial health, future prospects, and past performance. Credit rating agencies Standard & Poor’s and Moody’s must rate investment-grade bonds as “BBB-” or “Baa3” or above. Corporate bonds are more risky than government bonds and are more likely to default. However, bigger yields are usually associated with increased risk than “safe” government bonds. Depending on the issuer, liquidity fluctuates.
Non-investment grade bonds have a credit rating of below “BBB-” for S&P or “Baa3” for Moody’s. Because they are riskier and their ability to repay their debt is more dubious, these bonds are typically referred to as high-yield or junk bonds. It is critical to properly evaluate these bonds and weigh the dangers. When compared to investing in a higher-quality bond, there is a greater risk of capital loss.
Coupons are made from federal, provincial, or municipal bonds in which the semi-annual interest payments (coupons) and the principal amount (residue) are separated and marketed as distinct securities. These instruments are bought at a bargain and mature at par ($100) when they reach maturity. In general, the bigger the discount, the longer the term to maturity.
Coupons and residuals pay no interest until maturity and give the holder the entire face value of the instrument at that time. The interest is compounded annually at the time of purchase at the yield to maturity. A Canadian strip coupon with a yield of 6% maturing in five years, for example, would be marketed at $74.72 and mature at $100. Although no money is paid out until the bond matures, the bond’s interest accrues each year and must be reported as income on annual tax returns.
Strip coupons, when compared to traditional bonds, eliminate reinvestment risk by paying no cash flows until the investment matures. Coupons may have greater yields than bonds, but their price is more volatile than a bond of same term and credit rating.
Coupons provide investors with both safety (most are backed by the government or a high-quality corporation) and a guaranteed payout if held to maturity. Strip coupons are still popular in tax-advantaged accounts like RRSPs and RRIFs.
Financial institutions such as chartered banks, trust firms, and mortgage and loan companies provide Guaranteed Investment Certificates (GICs), which are deposit investments. GICs pay a fixed rate of interest for a given length of time.
Many GICs are insured by the Canada Deposit Insurance Corporation (CDIC) for up to $100,000 (principal and interest), as long as certain conditions are followed. Each issuer can give full CDIC coverage, so you could invest $400,000 with four separate issuers – all of which are fully CDIC insured and held in one account.
GICs have typically provided a return that is slightly greater than treasury notes (T-bills). They are popular with investors since they are deemed safe and fully guaranteed up to the CDIC level, as long as certain criteria are met.
GICs from a wide range of financial institutions are available to RBC Direct Investing clients.
The minimum initial investment varies each term, although it begins at $3,500 for registered accounts and $15,000 for non-registered accounts. The principal value of a security is the amount for which it is issued and redeemed at maturity, excluding interest.
You may be able to meet your financial needs while boosting your income by investing in GICs that pay annual, semi-annual, monthly, or compound interest.
Treasury bills (T-bills), commercial paper, and banker’s acceptances are examples of money market instruments that are sold at a discount and mature at par (face value). Your return is the difference between your purchase price and par value.
Short-term debt instruments issued by the federal and provincial governments are known as T-Bills. T-Bills are a popular investment for individual, institutional, and corporate investors since they are fully backed by the applicable government issuer and offer a high level of security.
T-bills are issued in 30-, 60-, or 90-day, six-month, or one-year maturities with a maximum maturity of one year. They are extremely liquid, and many investors choose to keep them rather than cash. They are available for purchase at any time.
T-bills are considered very safe because the issuing government completely guarantees them; yet, they have a lesser potential return than most other assets.
T-bills have a $10,000 minimum par value and are traded in $1,000 increments.
Your return is the difference between your purchase price and par value. This is referred to as interest income.
BAs are short-term credit investments that a borrower makes for payment at a later date. Banks “accept” or “guarantee” BAs upon maturity, providing a high level of security for short-term investors.
Banker’s acceptances are extremely liquid and often issued every one to three months.
When compared to other short-term investments, a BA’s yield to maturity (rate of return) can be appealing. Due to their poorer credit rating, BAs provide a slightly greater rate of return than T-bills.
RBC Direct Investing has a $50,000 minimum initial investment and trades in $1,000 increments.
Corporations issue unsecured promissory notes, which are known as CP investments. Companies use CP to fund seasonal cash flow and working capital needs at cheaper rates than they would with traditional bank loans.
CP is commonly issued for one, two, or three months, but it can be issued for any length of time between one day and one year. CP is extremely liquid and can be bought or sold at any time.
When compared to other short-term options such as T-bills or BAs, investors choose CP since it often gives the highest return. For a variety of reasons, CP investments are regarded as relatively safe. First and foremost, the corporations that issue the notes are often substantial and well-established. Furthermore, majority of the CP sold by RBC Direct Investing have an R1 grade (investment grade) rating from one of the major Canadian rating agencies.
RBC Direct Investing’s minimum initial investment is $100,000 par value, and it trades in $1,000 increments.
Crown corporations are government-owned businesses that are controlled by Canada’s sovereign. Crown entities such as the Canadian Mortgage and Housing Corporation, the Federal Business Development Bank, the Export Development Corporation, and the Canadian Wheat Board issue short-term promissory notes. Many crown corporations issue commercial paper in both Canadian and United States currency.
Crown corporate paper has a high liquidity level. It’s easy to sell it at market value before it matures, and it’s available for one month to one year.
The Government of Canada fully guarantees Crown corporate paper, which has the same excellent quality as Government of Canada T-bills but pays a little greater rate of return.
The minimal initial investment is $100,000 par value when available in inventory.
Investing in Mutual Funds or Exchange Traded Funds is another approach to obtain exposure to fixed income (ETFs)
Mutual funds and Exchange Traded Funds (ETFs) are pooled investment vehicles with significant variances, although they may provide the following benefits over portfolios made up of individual fixed income securities:
- Convenience: Bonds are widely available, simple to buy and sell, and allow easy access to the bond market.
- Diversification: Because fund managers have access to greater pools of capital, they can diversify by kind, sector, credit quality, and maturity more easily.
- Professional management: Can be actively managed by professionals, allowing for continued market participation. This can help to mitigate the effects of interest rate fluctuations.
- Liquidity: These funds are liquid investments that can usually be reinvested easily.
Money market instruments, bonds, and other fixed income securities are also investments made by mutual funds and exchange-traded funds (ETFs).
When you’ve decided which type of product is ideal for you, utilize the Fixed Income Screener, Mutual Fund Screener, or ETF Screener to narrow down your options.
What is the yield on Canadian government bonds?
The bond pays a fixed annual interest rate of 4%. You’ll earn $5,000 back if you hold the bond until it matures. A year later, you’ll receive 4% interest, or $200.
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 now a good time to invest in bonds?
Bonds are still significant today because they generate consistent income and protect portfolios from risky assets falling in value. If you rely on your portfolio to fund your expenditures, the bond element of your portfolio should keep you safe. You can also sell bonds to take advantage of decreasing risky asset prices.
In Canada, how may I invest in fixed income?
Fixed income investments are available through your local TD Canada Trust branch, TD Waterhouse, and TD Evergreen Investment Services. Another type of fixed-term investment is Term Deposits and Guaranteed Investment Certificates (GICs). They provide a fixed rate for a specified amount of time.