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Email this4:46 pm
November 4, 2014
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I don't want to stray off topic but this would not interest us because we are older folks but Kanaka, as you stated, Canadian insurance companies seem stable, financially strong companies, there is a SunLife Financial zero coupon bond 2042-May-29, $32.03, 4.231% yield to maturity. This is already the commission included in the price of today, December-5-2014.
My nephew was looking at this for his TFSA's a day ago and came across this. This was probably close to 4.80% to 4.90% last year in 2013 when rates were higher but for someone that is younger in their 20's and 30's and even maybe in their early 40's with RRSP's and TFSA's, this could make sense. A $10,000 investment matures at $31,220.
I am not recommending this but there are other higher interest conservative investment options .
5:46 am
June 29, 2013
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Sun Life is certainly a great company - but investing in a 28 year bond is not conservative investing to me - there is an interest rate risk over that number of years if you want or need to sell it earlier. I would prefer to buy either Sun Life common shares or to be even more conservative, Sun Life preferred shares which are both easily liquid and pay comparable dividends to that interest rate, with the dividend tax credit.
7:09 am
December 23, 2011
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Brian said
Sun Life is certainly a great company - but investing in a 28 year bond is not conservative investing to me - there is an interest rate risk over that number of years if you want or need to sell it earlier. I would prefer to buy either Sun Life common shares or to be even more conservative, Sun Life preferred shares which are both easily liquid and pay comparable dividends to that interest rate, with the dividend tax credit.
I have to agree. For young folks to lock in this bond versus the anticipated increase in interest rates and as well there are ETFS that can provide dividends at a higher rate that can be sold at any time. Perhaps a bond for 5% yield to mature in 6 or 7 years?
7:59 am
November 4, 2014
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Brian, this was a buy and hold, conservative long term investment for my nephew in a TFSA. It is not for trading or speculating on what interest rates will be in any given time. I agree though that it would of been a better choice last year in 2013 when rates on this was 4.80% to 4.90%.
As for being on the scale of risk, I was always told that bondholders in a company are more protected if a company has financial difficulty or for some other reasons so that is why in my opinion, it is more conservative than shares of a company.
In my opinion, dividends and capital gains are taxed at a lower rate because there is more risk involved with equities, shares of a company.
Kanaka, I think anything over 5% would be pushing it because if this was 6% on this $10,000 SunLife Financial zero coupon bond, it would be worth $49,591.26 by maturity. This is almost 5 fold over 27.5 years.
We are straying off topic here so we can agree to just disagree. Thanks for the info.
9:44 am
June 29, 2013
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Greg Franklin -
The Sun Life Financial Bond issued May 29-2007 @ 5.4% is Subordinated Unsecured Debt which qualifies as Capital for Canadian regulatory debt. This issue is Callable by the issuer and can be called after May 29-2037 (which means it might not get to 2042, depending on interest rates at the time, and Sun Life decides to call back outstanding bonds). I am sure you and your nephew are well aware of all this in choosing this investment.
9:54 am
November 4, 2014
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Brian, it is a non-callable zero coupon bond with a yield to maturity of 4.231% and its price is $32.03. It is not a 5.40% coupon paying bond as you are stating. It is not a regular bond that pays semi-annually interest.
You are talking about a different issued bond, Brian. Most preferred shares are callable, non-cumulative and non-participating. There is no direct obligation to pay dividends and can cut them too.
Preferred shares and common shares are not direct obligations of company which means they are behind in line of payment when there is financial changes or problems. A Good discussion and take care.
We strayed off topic again and this is not my intention. I was just responding to others that brought up the topic of Scotia Bank shares.
10:52 am
June 29, 2013
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Greg - The zero coupon bond is simply a bond which a dealer has bought and strips into separate parts: 1. the discounted bond and 2. the interest coupons or stream of interest payments.
Your nephew bought the bond part (stripped from the interest) at a discount and will receive the principal at maturity. Of course the 5.4% is no longer applicable to the zero coupon bond part - becomes 4.231%.
So it is very possible the product your nephew bought was the bond originally issued in 2007 (at 5.4% interest to be paid if it had not been stripped) - of course it is not now 5.4% because of the strip process that occurred by the dealer or seller - who owned it and or sold it to your nephew.
I am an accountant quite familiar with corporate debt instruments and I hope the above is clear. I still think the strip bond might be callable (which was a condition of the original issue) but if you have seen in writing that it is not callable, then that is fine.
3:14 pm
November 4, 2014
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Brian and for others, we do our due diligence and make sure that all our zero coupon bonds and bonds are non-callable. All our fixed income investments must be sold prior to maturity to get liquidity.
We only buy and hold all our longer term and all investments and use other shorter term investments like 1-7 year GIC's and higher interest savings accounts, term deposits, cashable GIC's and term deposits, redeemable GIC's and term deposits for our more liquid, accessible part of our total investment mix.
It is shown by our adviser in writing and and also zero coupon bonds and bonds have symbols on the account statement and confirmation that indicate if they are callable.
Callable strip bonds or zero coupon bonds have a stated callable date and callable yield to maturity which this one does not as any others we own do not have this call feature either.
I would say be even more careful for preferred shares because they are mostly callable and have the power to not payout dividends and cut them too.
You don't have to be an accountant to find out and know this stuff. It can be found online very easily in many places as well like with CDS.
I hope this clears this up and we can stay with the original issue at hand about Scotia Bank.Thank you.
3:57 pm
June 29, 2013
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Greg - Yes, I have had preferred shares redeemed or rate reset (in the case of the newer 5 year rate reset preferreds), but I have never had a dividend not paid on a preferred share in the 20 years I have invested in pref shares. As a matter of fact, one of my rate reset pref shares is resetting its rate for the next 5 year period effective Jan 1-15 from 5.50% to 4.50% a drop in my quarterly dividend income but considering the alternatives, still works for me. Greg I think this was a useful discussion and if 28 year zero coupon bonds work for you or your nephew in your or his portfolio, that is great.
I don`t think it is really too serious, if you think we went off topic. Be well and take care.
11:53 pm
November 4, 2014
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Going back to Scotia Bank, I noticed that through GIC brokers or deposit brokers like Fiscal Agents above, http://www.fiscalagents.com, RBC Dominion Securities, http://www.rbcds.com/gic-rates.html, Scotia Bank has higher GIC rates with them and other GIC brokers, deposit brokers versus Scotia Bank's direct clients at their branch.
In branch, direct client rates 1 year 1.30%, 18 month 1.50%, 2 year 0.85%, 30 month 2.00%, 3 year 1.00%, 1.15% 4 year, 5 year 2.30% versus deposit, GIC brokers, 1 year 1.56%, 2 year 2.01%, 3 year 2.13%, 4 year 2.32%, 5 year 2.50%
They are still pretty low compared to their competition but this is not always the case as I remember in 2013 that they had 3.00% 5 year GIC's, RESP's, RRSP's, RRIF's, TFSA's. Most other higher paying 5 year GIC's were in the 3.05% to 3.15% range at the same period in 2013.
This is why it always pays to shop around, compare rates and terms and be informed consumers, depositors, investors.
12:10 am
November 4, 2014
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Since Tangerine Bank is owned by Scotia Bank now, I noticed Tangerine Bank also has lower GIC rates compared to GIC, deposit brokers offering Tangerine Bank GIC's.
Direct clients, 1, 18 month, 2, 3, 4 and 5 years, 1.35%, 1.55%, 1.65%, 1.90%, 2.55% versus 1, 2, 3, 4, 5 years 1.55%, 2.00%, 2.10%, 2.31%, 2.56%.
Competition with other GIC rates through these deposit, GIC brokers is only thing I can see is why they would pay a little higher rates.
9:29 am
November 4, 2014
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Scotia Bank has a 1.88% GIC, RRSP, RRIF, TFSA, RESP rate which is better what Tangerine Bank has but is still not competitive with other 1 year GIC rates 2.15% to 2.40%.
They come out with these higher rate promotions but still fall short for us that shop around.
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