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Email this6:31 pm
February 8, 2022
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Since we are on the subject of bonds, has anyone considered Israel bonds? 100% record on payout. Great returns both in CAD and USD.
Just another way to diversify
6:35 pm
March 17, 2018
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bigzim said
Since we are on the subject of bonds, has anyone considered Israel bonds? 100% record on payout. Great returns both in CAD and USD.
Just another way to diversify
Someone bought one for my child in the past many years ago, which was a nice present. I had to redeem back then by going to their office, I think it's still like that for their certificate bonds, not for their book bond.
6:39 pm
August 14, 2023
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Briguy said
What's a 0 bond ?
Sorry , Money Market section . short term bonds. government issued, competitive with GICs, least complicated. Referred to as O bonds because there are no dividends paid out before maturity. No factoring in the pro-rating the first dividend payout in working out the return.
btw, work out the math on the bonds before committing . Do not accept the yield being exactly as stated. Make sure it all adds up to yield that it states. It's often not obsoletely correct.
Trader first, Saver second
6:56 pm
March 17, 2018
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TINAisOver said
Sorry , Money Market section . short term bonds. government issued, competitive with GICs, least complicated. Referred to as O bonds because there are no dividends paid out before maturity. No factoring in the pro-rating the first dividend payout in working out the return.
btw, work out the math on the bonds before committing . Do not accept the yield being exactly as stated. Make sure it all adds up to yield that it states. It's often not obsoletely correct.
Thanks for the advice ! I noticed that the money market 0 bonds are Government of Canada issued, so very safe, and paying 5.22 percent for 12 months. But I can get 5.75 percent for a year from EQ Bank for example, so it would have to be in a non registered account to be worthwhile to get the lower tax rate.
7:04 pm
October 27, 2013
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It has been historically difficult to beat GIC rates with government issued bonds or even AA rated corporate bonds. One generally has to dive into the lower BBB investment grades (the likes of Enbridge, Capital Power et al) to obtain higher yields than GICs.
Corporate bond market prices are also far more volatile in times of financial crisis such as March 2020. It was impossible to buy or sell a corporate bond from brokerage inventory at that time. The market had seized up and there was no fair way to price the bonds.
7:16 pm
April 27, 2017
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Briguy said
@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.
Yes, you could just have VBAL. There are advantages, eg in terms of costs and taxes if you split but also advantages in holding it all in a single product, mainly simplicity.
Nobody knows what will happen to interest rates, let alone the date of change in direction. That aside, if you are so confident that the interest rates will continue rising, buying individual bonds is just as bad as buying a fund containing bonds. Just keep it all in HISA and then throw it all into bonds when interest rates stop rising.
Added complication: increases in overnight interest rates set by the bank of Canada may not impact bond prices if the change is expected.
10:02 pm
April 6, 2013
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Briguy said
… I noticed that the money market 0 bonds are Government of Canada issued, so very safe, and paying 5.22 percent for 12 months. But I can get 5.75 percent for a year from EQ Bank for example, so it would have to be in a non registered account to be worthwhile to get the lower tax rate.
The tax is not lower for a strip bond. When the coupon is 0%, the bond is treated as a discount note or strip bond. The expected return is then interest for tax purposes and not capital gains.
Also, those yields displayed on Scotia iTRADE's site are not the net yield after adding the commission to the bond's price. One needs to add the commission and recalculate the yield, especially for the bonds that don't have that many months left until maturity.
4:28 am
March 17, 2018
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Norman1 said
The tax is not lower for a strip bond. When the coupon is 0%, the bond is treated as a discount note or strip bond. The expected return is then interest for tax purposes and not capital gains.
Thanks for pointing that out, in that case I'll probably stick to GICs or buy 25,000 dollars worth of regular bonds.
4:29 am
March 30, 2017
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For those looking to buy Corp bonds, my advice is to think of it as a GIC in terms of liquidity. In other words, only buy it if you plan to hold it to maturity. While it is true you can sell it back to the dealer, you are paying away a hefty bid/offer spread IF the dealer will indeed put a bid on it. They have no obligation to do so.
As for pricing fairness during volatile times, there is no such thing as a correct / fair price. It’s a guessing game and if you are being asked to buy a potentially very risky investment, what will you be willing to pay ?
I used to work in the industry and went thru numerous crisis. I can tell you during those times, we (the professionals) were also guessing what was the ‘fair’ price for a given bond / financial product. And we were asked 2 way market all the time. At the extreme, we will simply tell customers you need to specify if you want a bid or offer, as the dealers will NOT show a two way market.
9:32 am
April 6, 2013
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Briguy said
Thanks for pointing that out, in that case I'll probably stick to GICs or buy 25,000 dollars worth of regular bonds.
One could also buy some of the non-zero low-coupon bonds like the Government of Canada ½% 2023/11/01 bond.
Price 99.587 at Scotia iTRADE. Gross yield to maturity is 4.56%. Only around ½% of the gross 4.56% yield is interest. Rest is capital gain.
11:12 am
March 17, 2018
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Norman1 said
Briguy said
Thanks for pointing that out, in that case I'll probably stick to GICs or buy 25,000 dollars worth of regular bonds.One could also buy some of the non-zero low-coupon bonds like the Government of Canada ½% 2023/11/01 bond.
Price 99.587 at Scotia iTRADE. Gross yield to maturity is 4.56%. Only around ½% of the gross 4.56% yield is interest. Rest is capital gain.
Interesting, thanks, good for short term.
4:01 pm
March 17, 2018
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Norman1 said
Briguy said
Thanks for pointing that out, in that case I'll probably stick to GICs or buy 25,000 dollars worth of regular bonds.One could also buy some of the non-zero low-coupon bonds like the Government of Canada ½% 2023/11/01 bond.
Price 99.587 at Scotia iTRADE. Gross yield to maturity is 4.56%. Only around ½% of the gross 4.56% yield is interest. Rest is capital gain.
I'm very unsure at the moment about interest rates over 2024. Some people are saying economy will go into a recession and interest rates will stabilize with no more increases, others are saying interest rates will continue to increase due to inflation from factors such as oil staying above 100 dollars, maybe even increasing to 150 max.
So its hard to decide whether to just stay in a bank's ISA, or go into a longer term GIC or into a bond.
11:52 am
April 6, 2013
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Reliance on interest rate predictions is not good.
Lots of things can affect interest rates and inflation. So, accurately forecasting both is not really possible.
Bank of Canada has the ability to actually set short term interest rates. Yet, even they don't know how high they will need raise interest rates to bring inflation back to their 2% per annum target.
12:45 pm
February 14, 2023
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bigzim said
Since we are on the subject of bonds, has anyone considered Israel bonds? 100% record on payout. Great returns both in CAD and USD.
Just another way to diversify
I don’t see great returns, where do you see them?
6:46 pm
October 21, 2013
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Israel bonds have been discussed in more detail on earlier threads. Rates vary every few weeks.
8:06 am
April 6, 2013
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These are three of those previous threads:
Israel Bonds
Gov't of Israel bond rates up
Israel bonds taxation
11:30 am
March 17, 2018
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Norman1 said
The tax is not lower for a strip bond. When the coupon is 0%, the bond is treated as a discount note or strip bond. The expected return is then interest for tax purposes and not capital gains.
Also, those yields displayed on Scotia iTRADE's site are not the net yield after adding the commission to the bond's price. One needs to add the commission and recalculate the yield, especially for the bonds that don't have that many months left until maturity.
I was reading on todays greaterfool.ca ( Garth Turner ) blog, that there's an Alternative Minimum Tax that might reduce the benefit of capital gains deductions. Do you think there's still a benefit to capital gains over interest income with that in mind ?
Here's the excerpt:
there were some recent changes to something called the Alternative Minimum Tax (AMT). The AMT is an alternative or parallel income tax calculated by the government. The AMT tax calculation allows for fewer deductions, exemptions and tax credits. The AMT is then compared to taxes under regular federal income tax rates and the individual pays the greater of the two. This will impact taxpayers who benefit from preferential tax rates like capital gains or greater deductions.
12:39 pm
April 6, 2013
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Yes, there has been and continues to be a benefit to capital gains over interest.
There has been no capital gains deduction allowed for many years now on ordinary capital gains. The reduced taxes on ordinary capital gains is done by reduced inclusion and not by a deduction.
AMT currently applies only if one pays less than 15% federal income tax on adjusted taxable income (ATI) above $40,000. ATI includes ordinary capital gains at 80% instead of 50%. Not easy to end up paying less than 15% federal income taxes on total income (salary, interest, dividends, and capital gains) above $40,000.
The AMT changes will
- increase the AMT rate from 15% to 20.5%,
- increase the ATI inclusion rate for capital gains from 80% to 100%, and
- increase the $40,000 AMT exemption to around $173,000.
See PwC article Tax Insights: Proposed changes to the alternative minimum tax….
I suggest one not worry about AMT after the changes kick in (starting taxation year 2024) until one has more than $170,000 of income in a year.
I've been completing T691 each year to calculate my AMT. I have yet to have a year where I pay less regular income taxes than my calculated AMT.
12:44 pm
March 17, 2018
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Norman1 said
Yes, there has been and continues to be a benefit to capital gains over interest.There has been no capital gains deduction allowed for many years now on ordinary capital gains. The reduced taxes on ordinary capital gains is done by reduced inclusion and not by a deduction.
AMT currently applies only if one pays less than 15% federal income tax on adjusted taxable income (ATI) above $40,000. ATI includes ordinary capital gains at 80% instead of 50%. Not easy to end up paying less than 15% federal income taxes on total income (salary, interest, dividends, and capital gains) above $40,000.
The AMT changes will
- increase the AMT rate from 15% to 20.5%,
- increase the ATI inclusion rate for capital gains from 80% to 100%, and
- increase the $40,000 AMT exemption to around $173,000.
See PwC article Tax Insights: Proposed changes to the alternative minimum tax….
I suggest one not worry about AMT after the changes kick in (starting taxation year 2024) until one has more than $170,000 of income in a year.
I've been completing T691 each year to calculate my AMT. I have yet to have a year where I pay less regular income taxes than my calculated AMT.
Thanks Norman ! I make way less than 170K so will try to maximize capital gains over interest income.
12:52 pm
April 6, 2013
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Also keep in mind that difference between AMT paid and regular income taxes can be refundable in future years when one's AMT is less than the regular income taxes paid. The PwC article notes the following:
If the AMT calculated exceeds the regular federal income tax otherwise payable, the individual will have to pay the AMT instead of the regular federal income tax. The difference between the AMT and the regular federal income tax is considered a “temporary” refundable tax that, once paid, can be applied in the following seven years to reduce the amount of regular federal income tax that the individual would otherwise have to pay, up to the amount by which that regular tax exceeds the AMT calculated for that year.
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