Long term bond rates and the state of the economy | General financial discussion | Discussion forum

Loonie said

I would be leery of that one too. A lot could happen in telecommunications between now and 2027. It's an area that is going through rapid change, it seems to me.
Unless you have a huge amount in a wide variety of laddered bonds to buffer any problems, creating your own little "fund", I wouldn't do it. But I'm a bit of a chicken when it comes to these sorts of things!
And, remember Nortel.

Not too sure if we should be concerned about the economy in Germany. I realize some economies can be of some impact on us but only concerned about what I can do here. Just google investment interest rates in Australia and Iceland. While I don't profess to understand the economy I do remember our 18% mortgage and during our years of struggling with finances and building family we never had a mortgage for less than 9%. To me it appears the Feds are coddling the younger generation to protect their investment in their home and bank loans and as we older folks would like to see our hard earned savings grow 2.9% doesn't cut it!!

I went to a business meeting years ago and one of the speakers was a futurist. He suggested NOT to invest in TELCOs. But that was before we were proliferated with mobile phones, very high speed internet, and being offered tv programming by Telus or Bell. Telcos have and will have to continue to reinvent themselves to be a viable investment. And since they are a group of 3 or 4 companies that are a monopoly with pricing (ripping us off) and the Feds give us false promises about doing something about it. I guess for now they are a good investment.

What will be here for a long time...banks...oil...gas...electricity....?? Where to invest and what blends are attractive?

Personally I still DONT see the point of bonds but do admit I have some ETF bond investments. To hold a bond for 13 years makes me 78....not for me! And who knows if interest rates don't improve in 5 years?

While I think we knew where we were going with Mr Flaherty this new guy is tooooooo quiet......just like Harper.

Jack Manning said

Kanaka, my adviser suggested that 4.16% 2027 Bell Canada zero coupon bond because I asked him for a safe alternative to GIC's that paid more than 3.00%. I wanted my TFSA, income tax free money to grow from $15,000 to $25,000.

I guess that is the best he could come up with during the last few days. I noticed that since yesterday it is lower to 4.11%.

Everyday interest rates on zero coupon bonds are dropping fast.

Jack, there is no doubt that I have stayed away from bonds because I don't understand them and have concerns about how liquid they can be, far out maturities, and how secure they are. So your example of 4.16% ..... Is that 600 plus a year times 13 years or is it compounded or is the matured value $25000. I will look if up on my iTRADE account as well.

Jack Manning said

Kanaka, actually, it has been almost 6 years since 5 year GIC rates were at least 4.10% to 4.25%. I remember in 2007 June-15 I got a 4.80% 5 year GIC at Home Trust Company.

After that GIC rates dropped fast after 7 months they were around 4.25%.

Another thing I continue to look at is the spread between yearly terms. For awhile I found the 4 year rate you were often gypped but the following case you are gypped on the 3 year rate. While the highest % is the highest return but when you look at the spread what is the best choice or value. There must be some way to rate BEST value of rates offered for a GIC or determine what is the POOREST choice to make. In this case, in my opinion, the 3 year term is a POOR choice.

Ie. current rates are at a popular CDIC financial institution.
1 year 2
Plus .35
2 year 2.35
Plus .05
3 year 2.4
Plus .20
4 year 2.6
Plus .30
5 year 2.9

So .225 is the average spread and extrapolate that for 13 years.......4.19% for a 13 year bond is NOT good value in my opinion. Should be 4.7 or better.

Just thought I would throw out another way of looking at it......

I thInk I will remain with the GIC and consider a five year a short term vs a bond and keep my fingers crossed that rates will go up. I need to get my laddering in place to catch the opportunities!!!!

Soooooo....how do you work out a five year ladder and double up in one of the terms to avoid the 3 year rate?

I am no economist, nor a banker or anything like it, but it seems to me that economies all over the place have been in trouble for most of the last decade or so.
I suspect that we kid ourselves if we think Canada will somehow be exempt in the longer term. Already, wages are simply not keeping up and have not been. we have been getting the "soft landing" approach for years now, it seems to me, and I don't really see where this will be likely to end.
Bank of Canada projects about 2% GDP for next 2 years, which does not seem that impressive, although again I am no expert. And that's IF we make it.
I just can't see in my little crystal ball where this companies will be in X years, even the larger ones.
And I would be especially disinclined to take the risk in TFSA or RRSP where there is no way to deal with the loss, tax-wise, if it comes to that.
Hopefully, these companies would just buy each other out and everybody would win, more or less. But I find the world so unstable and unpredictable, I just don't know.
But I'm a lot older than 39 too. At 39, I had mutual funds. Not now.

I agree, Jack.
But I am not counting on government or journalists to spill the beans on this one.
Wage losses have certainly been experienced as very high by people who had to find new jobs when they would have liked to have retained the old ones, but I think a lot of the disappearing income evaporates into inflation.
An example that came my way today: support staff at Ontario's community colleges, who are unionized, just tentatively accepted a four-year deal with wage increases of one per cent in the first year and second years with 0.5 per cent hikes in the third and fourth years. There will also be one per cent lump-sum payments in the third and fourth year of the contract. (These 1% payouts would be in order to avoid setting a higher base for future negotiations.) It has still to be ratified.
For those who are not even unionized, this may look somewhat desirable. However, I am certain this agreement will not even keep up with inflation. And it seems to have been accepted without a whimper, at least by union management.