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Email this11:10 am
March 17, 2018
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I was looking at the fixed income section of ITrade, and I noticed that corporate bonds are over 5.6 percent in some cases.Is anyone buying these instead of GICs?
Some examples:
ISSUER/ YIELD
BANK OF NOVA SCOTIA/ 5.90
CANADIAN WESTERN BANK/ 6.14
CIBC/ 5.90
GENWORTH MORTGAGE INSUR/ 6.80
11:19 am
April 27, 2017
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Yes, but only within ZAG ETF wrapper.
2:02 pm
August 14, 2023
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Briguy said
I was looking at the fixed income section of ITrade, and I noticed that corporate bonds are over 5.6 percent in some cases.Is anyone buying these instead of GICs?Some examples:
ISSUER/ YIELDBANK OF NOVA SCOTIA/ 5.90
CANADIAN WESTERN BANK/ 6.14
CIBC/ 5.90
GENWORTH MORTGAGE INSUR/ 6.80
Foregoing that bonds and GIC's are apples and oranges. Looking at the yields of the bonds they are attractive. I find Itrade's bond fees a bit prohibitive . A buck a bond , $25 min. and $250 max is too much for my frugal inclination.
It has been mentioned on this site regarding an unofficial waiving of bond fees at Itrade if the total bond purchase is less than 25000 and a duration less than 90 days. I have not personally attempted a purchase of this kind recently since GIC rates are as good or better for that term.
I might be opening a can of worms now, but here we go. Bond ETFs are not Bonds. (according David Rosenberg, which I completely agree with.)
Trader first, Saver second
2:29 pm
March 17, 2018
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TINAisOver said
Foregoing that bonds and GIC's are apples and oranges. Looking at the yields of the bonds they are attractive. I find Itrade's bond fees a bit prohibitive . A buck a bond , $25 min. and $250 max is too much for my frugal inclination.
It has been mentioned on this site regarding an unofficial waiving of bond fees at Itrade if the total bond purchase is less than 25000 and a duration less than 90 days. I have not personally attempted a purchase of this kind recently since GIC rates are as good or better for that term.I might be opening a can of worms now, but here we go. Bond ETFs are not Bonds. (according David Rosenberg, which I completely agree with.)
I've never tried buying a bond before, so I might have been doing this wrong.I pretended to buy 5000 dollars worth of CWB on ITrade, and I put a qty of 5000, and it showed a fee of 25.00, which is assume is about 52 bonds, since it's showing a 95.72 cost.
BuyQuantity:5,000
Issuer:CANADIAN WESTERN BANK
Price Type:MarketPrice $:95.718 Yield:5.936246Price $:0.000Earliest Call Date:N/ACANADIAN WESTERN BANK 2.606% 2025/01/3095.718
Price Yield Quantity
95.718 5.936246 1,000,000
Rating Next Payment Date Currency
A(LOW) 2024/01/30 CAD
Callable Call Price Earliest Call Date
No 0.000 N/A
Quote as of: Sep 19, 2023 05:20:28 PM ET
Your Order Totals:
Estimated Principal Value $:4,785.90
CADEstimated Commissions $:24.99 CAD
Estimated Accrued Interest $:18.92
Transaction Value $:4,829.81 CAD
2:34 pm
April 27, 2017
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No, bond ETFs are not individual bonds. Its a whole diversified portfolio of bonds in a fund. GICs, HISA, bonds, are all different but are all types of fixed income.
GICs are not liquid (for the most part) but have insurance (up to a limit).
Individual bonds are liquid but at a cost. And uninsured. And fairly painful to buy and sell. And not diversified.
Bond ETFs are diversified, very liquid and easy to buy/sell but carry a small ongoing charge to own.
Owning some GICs makes sense to me. Psychologically helps too; you don’t see the price drop as its illiquid. Just need to make sure there is enough liquidity elsewhere in the portfolio. Owning individual bonds vs ETFs is harder to justify for retail customers.
2:37 pm
March 17, 2018
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Since it's a 25.00 minimum charge at Scotia Itrade, one would incur the least fees if you buy 25,000 dollars worth of bonds, which is only 0.1 percent charge. And I guess another 0.1 percent on selling, or maybe zero on selling if you just let it mature.
2:48 pm
March 17, 2018
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mordko said
Individual bonds are liquid but at a cost. And uninsured. And fairly painful to buy and sell. And not diversified.
Why would it be painful to sell if you just let it mature ?
(I've never bought a bond so I may be misinformed)
3:50 pm
April 27, 2017
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If you don’t sell a bond then its not painful. Selling a house isn’t painful either if you don’t do it.
4:46 pm
October 27, 2013
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Briguy said
I've never tried buying a bond before, so I might have been doing this wrong.I pretended to buy 5000 dollars worth of CWB on ITrade, and I put a qty of 5000, and it showed a fee of 25.00, which is assume is about 52 bonds, since it's showing a 95.72 cost.
BuyQuantity:5,000
Issuer:CANADIAN WESTERN BANK
Price Type:MarketPrice $:95.718 Yield:5.936246Price $:0.000Earliest Call Date:N/ACANADIAN WESTERN BANK 2.606% 2025/01/3095.718
Price Yield Quantity
95.718 5.936246 1,000,000
Rating Next Payment Date Currency
A(LOW) 2024/01/30 CAD
Callable Call Price Earliest Call Date
No 0.000 N/A
Quote as of: Sep 19, 2023 05:20:28 PM ET
Your Order Totals:
Estimated Principal Value $:4,785.90
CADEstimated Commissions $:24.99 CAD
Estimated Accrued Interest $:18.92
Transaction Value $:4,829.81 CAD
Your comment about '52 bonds' is not correct. The quote is for one CWB bond at a current market price of $95.72 per $100 face value as compared to face value of $100 (at time of issue and at time of maturity). The lower price is simply the market value of that bond which ordinarily has only a coupon yield of 2.606%. The only way you are getting a 5.936% yield out of this bond is by paying less than $100 face value.
You are buying a $5000 bond for $4785.90 plus fees and accrued interest and will get coupon interest of $130.30 coupon interest per year from this bond ($5000 x 2.606% interest rate), which is paid out semi-annually....thus $65.15 every 6 months.
As post #6 suggests, you have a minimum commission of $24.99. You actually need to buy $25000 in bond face value to bring that commission down to 0.1% minimum cost. I never buy bond quantities of less than $25000 so that I can get away with minimum commission.
4:48 pm
March 15, 2019
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A gain on sale of a bond is treated as a capital gain for tax purposes unless you are in the bond trading business.
Conversely, a loss on the sale of a bond is treated as a capital loss for tax purposes unless you are in the bond trading business.
Caveat: This advice is free and I assume no responsibility if things go sideways.
4:51 pm
October 27, 2013
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Agreed. This particular bond will pay out a capital gain at maturity. That is the beauty of such a bond in a non-registered account. Some of your return is actually taxed as capital gain rather than Other Income.
4:55 pm
March 17, 2018
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Thanks for the explanation @Altared . Am I correct in assuming that there's no selling cost if you keep the bond until maturity, and you would just get back your 5000.00 if you bought 5000 dollars to start?
Assuming one is buying a bond from a too big to fail bank like TD, why not earn the extra interest/reduced tax in buying a bond instead of a GIC , assuming you want to buy 25,000 dollars worth and only incur a 0.1 percent loss in income?
5:33 pm
February 8, 2022
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Makes tons of sense to me looking at diversification on fixed income, cash flow and capital gains. Buying bonds below par value is an excellent way to get that providing you hold till maturity. I see corporate bonds investment grade ar rates above 5.6%, trading below par. Cash flow is better than bonds as minimum payout is semi annually. Building a ladder of bonds looks to be a great compliment to GIC laddering.
5:42 pm
August 14, 2023
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Briguy said
Why would it be painful to sell if you just let it mature ?
(I've never bought a bond so I may be misinformed)
As long as you hold that bond to maturity and there isn't a default it's just like a GIC that matures, painless.
But there is pain if for some reason you find yourself suddenly requiring money and you need to cash in your bond before maturity, this happens. That holds true for any asset you might own, even a house. The market price is what it is. If you are forced to sell and it's below your cost, well, that's painful. The greater the loss , the greater the pain.
That's the primary difference between holding a bond and holding a bond ETF. Bond ETF's don't have maturities. They act just like stocks in this manner. If you own a bond, there an implied promise to pay dividends during intervals ( if applicable ) and principle at maturity . From its point of sale to the point of maturity the bond will have a market value that may be less or more than the face value of the bond dependent on the market forces.
For example the bonds you mentioned in post #1 . Those all lost value compared to their original release. We know this because each bond has a face value of $100.00. Take the GENWORTH MORTGAGE INSUR/ 6.80 bond offer. The ask price is $88.301. It's being sold at a discount price of $11.699 (100-88.301). If the ask price was say $110.00 then this would be premium of $10.
As for Bond ETF's their no certainty of value at the time of sale regardless of the duration it is held because an ETF has no maturity date. The market value of that bond ETF is determined by the value of the bonds held.
There is significantly more to Bonds and bond ETFs to what I have discussed above and really is a great thread to explore into of its own (let alone an entire forum).
Trader first, Saver second
5:45 pm
March 17, 2018
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bigzim said
Makes tons of sense to me looking at diversification on fixed income, cash flow and capital gains. Buying bonds below par value is an excellent way to get that providing you hold till maturity. I see corporate bonds investment grade ar rates above 5.6%, trading below par. Cash flow is better than bonds as minimum payout is semi annually. Building a ladder of bonds looks to be a great compliment to GIC laddering.
The maturation of the bonds is the hard part to get right- they have a huge range of maturation dates, and its more difficult to ladder since there's less fees if you buy in 25,000 dollar amounts.
6:03 pm
April 27, 2017
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If the plan is to buy individual bonds and hold to maturity then there is little advantage over GICs. The main disadvantage is risk/reward. Bonds carry higher risk vs CDIC insured GICs unless these bonds are from the federal government; and in that case GICs typically offer higher returns, particularly if you account for the cost of purchasing. Exceptions: very large amounts or tax reasons in certain circumstances when bonds may work and long term instruments.
Bonds have an advantage over GICs when they serve as a component of an overall portfolio which is rebalanced regularly. If stocks crash then some bonds would be sold to buy more stocks. That requires liquidity so GICs wouldn’t work. And bond ETFs would work better than individual bonds.
Also you can mix bonds and GICs so you have some liquid fixed income to use for rebalancing and some to provide “feel good” when prices drop but GICs don’t show the fall.
6:07 pm
October 27, 2013
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I agree a bond ladder is more difficult to manage for those reasons, i.e the maturity date of a bond is fixed and you have to look for bonds that mature about when you want them too. There is no commission when a bond matures. It is just like a GIC from that perspective.... the principal @ $100 face value plus coupon interest for the past 6 months shows up in your brokerage account.
One should never buy a bond if one thinks they may have to sell before maturity. When one buys the bond in the first place, one is buying it from their broker's inventory of bonds it has in hand, not the market as a whole. If you want to sell it before maturity, you are actually asking the brokerage to buy it back and stick it back in their inventory. If they don't want it, they won't offer you a reasonable price. It could be heavily discounted. There is no transparency!
I used both bonds and GICs in my 5-7 year ladder in my RRSP/RRIF. It is a juggling act.
6:11 pm
August 14, 2023
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Briguy said
The maturation of the bonds is the hard part to get right- they have a huge range of maturation dates, and its more difficult to ladder since there's less fees if you buy in 25,000 dollar amounts.
I would start small and short duration bonds to get a hang of them. 25000 increments, under 3 year. there is a lot to know about bonds when you getting into longer duration. Being tradable, unlike GICs , add a dimension and strategy left to more advanced knowledge of bond buying . such as types of bonds and the pesky details in those agreements.
The easiest bond to buy is the 0 bonds. you can't go wrong with those in any way, mostly.
Trader first, Saver second
6:14 pm
March 17, 2018
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Thanks Altared and Tinaisover for all the explanations !
@Mordko, if you plan to own stocks and bond ETFs, you could just buy a balanced ETF that holds a certain ratio of both and does the balancing for you. eg. VBAL which is 40 percent bonds and 60 percent stocks. I don't like to hold any bonds in an ETF when interest rates may still be rising, so I wouldn't buy a balanced ETF or a bond fund until mid 2024 at the earliest.
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