Canada 2 Year Yield | Canada 5 Year Yield | Canada 10 Year Yield | Canada 30 Year Yield |
---|---|---|---|
3.03% | 2.93% | 3.07% | 3.14% |
Canadian yields as of December 5, 2024
Canada 1 Month Treasury Yield | Canada 3 Month Treasury Yield | Canada 6 Month Treasury Yield | Canada 1 Year Treasury Yield |
---|---|---|---|
3.52% | 3.35% | 3.28% | 3.21% |
Canadian treasury yields as of December 4, 2024
The government of Canada’s (GoC) public debt primarily consists of outstanding government securities. These securities include treasury bills and marketable bonds. The Bank of Canada (BoC) auctions these securities to financial market dealers. GoC bonds with terms of 2 years, five years, ten years, and 30 years are frequently auctioned by the BoC.
These GoC bonds pay interest semi-annually and pay their face value at maturity. Among GoC bonds, the 5-year bond yield and, to a lesser extent, the 10-year bond yield attracts a lot of attention as indicators of market expectations about the direction of interest rates in Canada.
Though the bonds are auctioned only in specific terms, as time passes, the remaining term of each bond shortens. For example, a 5-year bond issued today might trade between investors as a three-year bond in two years. A 10-year bond issued three years ago is now trading as a 7-year bond between investors.
BoC also auctions treasury bills on behalf of the GoC. Treasury bills are often auctioned with approximate terms of 3 months, six months and 12 months. Treasury bills are redeemed for their face value at maturity. Unlike bonds, bills do not pay interest. Investors are compensated by purchasing bills at a discount to their face value.
Purchasing Government of Canada bonds or treasury bills in the BoC auctions is limited to authorized government securities distributors. Others can only participate through one of these authorized distributors. After the initial auction, government securities are very liquid. They trade over the counter (OTC) between brokers and broker-dealers. Anyone can have their broker purchase Government bonds for them or sell their holdings of Government securities.
Most bonds, including most of the GoC bonds, are nominal bonds. A nominal bond is a bond which pays a set coupon rate at regular intervals and its face value at maturity. When investing in nominal bonds, an investor must form an opinion about the average inflation rate during the bond term and add their expected real return to arrive at the yield they demand to purchase a specific bond issue.
If inflation surprises to the downside during the bond term, the real return from the bond would be greater than expected; if inflation surprises to the upside, the real return would be less than expected.
Real return bonds (RRBs) are a solution to the uncertainty in the return of conventional bonds due to any potential surprise in the rate of inflation. The return in real return bonds has two components. The first part of the return is the semiannual interest they pay, and the second part is the adjustment in the principal (face value) of the bond.
The coupon rate for RRBs is set in advance when the bond is issued. The adjustment in the face value of the bond is based on changes in the consumer price index (CPI). It is unlikely that we see negative inflation, so most often, we see a rise in the face value of the RRBs. However, it is possible for the RRB principal to decline if the CPI declines.
Though the semiannual interest rate is fixed except for the first interest payment period, the amount of the actual interest paid is not fixed as it will change based on the principal, which will adjust based on the changes in CPI.
Treasury Bills | Bonds |
---|---|
Bank of Montreal | Beacon Securities Limited |
Beacon Securities Limited | BMO Nesbitt Burns Inc. |
Canaccord Genuity Corp. | Canaccord Genuity Corp. |
Canadian Imperial Bank of Commerce | Casgrain & Company Limited |
Casgrain & Company Limited | CIBC World Markets Inc. |
CTI Capital Securities Inc. | CTI Capital Securities Inc. |
Desjardins Securities Inc. | Desjardins Securities Inc. |
HSBC Bank Canada | HSBC Securities (Canada) Inc. |
Laurentian Bank Securities Inc. | Laurentian Bank Securities Inc. |
Merrill Lynch Canada Inc. | Merrill Lynch Canada Inc. |
National Bank Financial Inc. | National Bank Financial Inc. |
Odlum Brown Limited | Odlum Brown Limited |
RBC Dominion Securities Inc. | RBC Dominion Securities Inc. |
Scotia Capital Inc. | Scotia Capital Inc. |
Sherbrooke Street Capital (SSC) Inc. | Sherbrooke Street Capital (SSC) Inc. |
The Toronto-Dominion Bank | The Toronto-Dominion Bank |
Government of Canada bonds are debt securities issued by the Government of Canada to raise funds for various government activities and projects. These bonds are considered one of the safest investments in the world because they are backed by the Canadian government's full faith and credit. Investors often use them as a low-risk way to preserve capital and earn a steady interest income.
Government of Canada bonds provide a stable and low-risk investment option for individuals, institutional investors, and foreign investors looking to diversify their portfolios while prioritizing safety and income generation.
These are the most common type of government bonds and are available to both individual and institutional investors. They have a fixed interest rate, paid every 6 months, and face value, which will be paid at the maturity date.
RRBs are designed to protect investors against inflation. Their principal value increases with inflation, and they pay a fixed interest rate on the inflation-adjusted principal.
T-bills are short-term debt securities with maturities ranging from a few days to one year. They are typically sold at a discount and do not pay regular interest; instead, investors receive the face value at maturity. As of April 2024, T-Bills formed about 21% of the government of Canada’s debt.
Treasury Bills | Bonds |
---|---|
Bank of Montreal | BMO Nesbitt Burns Inc. |
Canadian Imperial Bank of Commerce | Casgrain & Company Limited |
Desjardins Securities Inc. | CIBC World Markets Inc. |
HSBC Bank Canada | Desjardins Securities Inc. |
Laurentian Bank Securities Inc. | HSBC Securities (Canada) Inc. |
Merrill Lynch Canada Inc | Merrill Lynch Canada Inc. |
National Bank Financial Inc. | Laurentian Bank Securities Inc. |
RBC Dominion Securities Inc. | National Bank Financial Inc. |
Scotia Capital Inc. | RBC Dominion Securities Inc. |
The Toronto-Dominion Bank | Scotia Capital Inc. |
The Toronto-Dominion Bank |
Government of Canada bonds come with various maturity periods, ranging from a month to three decades. Investors can choose bonds that align with their investment goals and time horizons.
Most government bonds pay interest semi-annually, while T-bills are sold at a discount and do not make regular interest payments. Instead, T-bill investors receive the full face value at maturity.
Government of Canada bonds are considered extremely safe investments because they are backed by the Canadian government, which has a strong credit rating. Canadian Government is rated AAA by Standard & Poor’s, Aaa by Moody’s Investor Service, AA+ by Fitch Ratings, and AAA by DBRS. This means there is a low risk of default on the part of the Government of Canada.
Government of Canada bonds are highly liquid, meaning they can be easily bought and sold in the secondary market. This liquidity makes them a popular choice for investors looking for flexibility.
Interest income from Government of Canada bonds is taxable at the federal and provincial level at your marginal tax rate, similar to other interest income. Other sources of interest income include savings accounts, high-rate savings accounts and guaranteed investment certificates (GICs). RRBs offer some tax benefits.
Government of Canada bonds can be purchased through financial (investment) brokers. As a result of automation in the financial industry, we currently know most financial brokers as trading platforms. Many large financial institutions, including big banks, own brokerages and compete with independent investment brokerages. The government also used to allow individuals to buy bonds directly through the Canada Savings Bond program. This program is discontinued because of its high administration cost.
The yield on Government of Canada bonds is influenced by factors such as prevailing interest rates, bond maturity, and market demand. Prices of existing bonds in the secondary market can fluctuate based on changes in interest rates.
Government bonds are redeemable at their face value upon maturity. However, investors can also sell them in the secondary market before maturity if they wish to cash out early. The price at which the bond is sold may be higher or lower than the face value, depending on prevailing interest rates.
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