go to bonds instead

  • debt security
  • represents the debt of the issuer (government or corporation) to the bondholder (purchaser)
  • interest is tax deductible for the issuer
  • Current Yield = 100 x (Interest for 1 Year)/(Current Market Price)

Government Bonds

  • government bonds have very low risk
  • the primary form of government financing
  • a T-Bill is not a bond

Canada Savings Bonds (CSBs)

  • can be bought by individuals, estates, and some trusts
  • limits on purchase amounts
  • minimum interest rate guaranteed for one or more years
  • cashable any time and any bank
  • not transferable (registered in the name of the buyer)
  • not assignable, but can be used as collateral
  • buyers must be Canadian residents with a Canadian address
  • sold from October to April
  • types of interest
    • regular: paid each November 1
    • compound: report in the year earned, not in the year received
  • cashing
    • before January 31 of the year following purchase: receive the face amount without interest
    • thereafter: receive interest for each full month elapsed since purchase

Government (Marketable) Bonds

  • forms
    • bearer: the bearer can sell and/or collect interest from the coupons
    • registered: in the name of the owner of the bond
  • term
    • short-term (or money market): due in three years or less
    • medium-term: due in three to 10 years
    • Long term: due in more than 10 years

Government of Canada Real Return Bonds

  • linked to CPI
  • interest calculated on the face amount plus CPI since issue
  • redemption value at maturity = original face amount + inflation since issue

Canada Premium Bonds

  • like Canada Savings Bonds, but higher interest rates at issue and less flexibility
  • redeemable without penalty within 30 days of each anniversary

Provincial Bonds

  • denominations: $500, $1000, $5,000, $10,000, $25,000
  • can only be purchased by residents of the problems
  • only sold at certain times of the year
  • redeemable every six months

Municipal Bonds

  • types
    • term debentures (mature at end of term)
    • serial bonds (a portion matures each year)
  • generally not callable

Corporate Bonds

  • a form of corporate debt with corporate assets pledged as security
  • issuer (borrower) promises to
    • pay the bondholder a specified amount of interest for a specified length of time
    • repay the loan at maturity

Bond Ratings

Investment grade bonds (highest to lowest)

  1. Aaa
  2. Aa
  3. A
  4. Baa

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