Fixed Income (Bonds)

Bonds


A Bond is an obligation or loan made by an investor to an issuing institution (e.g. a government or a company). The issuer promises:

  • To repay the principal (or face value) of the bond on a fixed maturity date; and

  • To make regularly scheduled interest payments (usually every six months).


Debentures


A debenture is a fixed income security that is not secured by any physical claim or lien on specific assets, and is backed only by the general credit of the issuer.


Savings Bonds 


Savings Bonds issued by the Canadian and various Provincial governments are quite different than conventional bonds. Savings bonds typically pay a specified interest rate annually (there are also compound interest bonds available) and are cashable at any time within a few months after they are issued.


Treasury Bills


The shortest term, marketable debt instrument issued by the Federal government.  Ideal for clients seeking a short-term investment of one to twelve months, t-Bills are highly liquid, offer the highest security and competitive yield. T-Bills, and most other money market instruments, are sold on discount basis.


Banker’s Acceptances


A short-term promissory note issued by a corporation, bearing the unconditional guarantee (acceptance) of a major Chartered Bank.  BAs offer superior yields to T-Bills with higher quality and liquidity than most commercial paper issues.


Commercial Paper


An unsecured promissory note issued by a corporation or finance company. The credit quality will vary with the issuer.


GICs


A GIC is a note issued by a trust company with a fixed yield and term.  Most GICs are insured by the Canada Deposit Insurance Corporation (CDIC) for interest and principal totaling up to $100 000.


NHA Mortgage-Backed Securities (MBS)


An NHA MBS is an investment which combines the features of residential mortgages and Canadian government bonds. MBS investors receive monthly income consisting of a blend of principal and interest payments fr0m a pool of mortgages.


Strip Coupons And Residuals


Similar to a long term T-Bill, these instruments are purchased at a discount and mature at par (100). Strip coupons generally offer higher yields than bonds of similar term and credit quality.

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©2020 BY SMART INVESTING FOR CANADIANS

All articles herein are presented as an educational resource and should not be considered as professional financial or individualized investment advice. Readers should always exercise their own judgement when making any decisions about their money.

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