Why Are Some Rates Increasing?? | Page 2 | GIC discussions | Discussion forum

AltaRed said
A lot of corporate bonds in that list trading under par. That is because the corporate bond market seized up, e.g. lack of liquidity. For a few dark days last week, I checked both the BMO Investorline and Scotia iTrade corporate bond inventories for short and medium term maturities. It was rare to find a corporate bond with a Bid price alongside the Ask. That simply means there were no buyers, presumably at any price.
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They are all under par because that's one of the conditions Doug put in.

I've seen no bids for some of the bonds I bought in the past during less eventful times. The lack of a bid price just means that the bond desk of BMO InvestorLine or Scotia iTRADE isn't interested in buying the bond if one has it.

Retail investors don't actually trade bonds over an exchange like they do with stocks. There are no exchanges for bonds. Instead, investors actually trade with their investment dealer and its inventory. That's why the confirmation slip for a bond purchase says something like "As principal, we today confirm the following sale to you" instead of "As agent, …"

Advice for Investors: How to buy bonds—at a fair price has more details about bonds and how they actually trade.

AltaRed said
A lot of corporate bonds in that list trading under par. That is because the corporate bond market seized up, e.g. lack of liquidity. For a few dark days last week, I checked both the BMO Investorline and Scotia iTrade corporate bond inventories for short and medium term maturities. It was rare to find a corporate bond with a Bid price alongside the Ask. That simply means there were no buyers, presumably at any price.

I have not checked what BoC might do about the lack of corporate bond liquidity, but in the USA, the Fed is (or is planning on) buying corporate bond ETFs in the USA to provide liquidity. It is too difficult to buy corporate bonds individually in the quantities they need to buy, so they will be buying corporate bond ETFs off the stock exchange. I think that may be a first for the US Fed.

In a recent G&M column, I think Andrew Coyne said that Canada has the highest overall corporate debt in the developed world. I forget the specific metric but the sound bite is our corps are leveraged up. So....what that tells me is to be sure to buy A or AA debt (not lower) and be prepared to carry it to maturity. There may be no buyer if you ever wish to sell. Corporate bond ETFs have had a bad few weeks with large Bid/Ask spreads and big discounts to NAV. It is an ETF space NOT to be in at the current time.

P.S. I am only an infrequent investor in corporate bonds and they are all in my RRSP. I have an Enbridge one coming due late this year. Not sure if I will replace it with a GIC or another corporate bond, but if the latter, it has to give me a pretty good premium AND be from a sound company, e.g. a regulated utility, with almost guaranteed cash flow.  

That actually advantages the "buy" side (in this case, toto). Yes, if you need to sell before maturity, liquidity can be a concern and there can be wide bid/ask spreads, but that's normal. toto's savvy with her GIC deposit maturities; I suspect she would not book any bond that she didn't intend to hold to maturity.

As for corporate bonds, the Bank of Canada Governor recently gazetted the ability to buy corporate bonds of both domestic and foreign entities—that is, not just sovereign bonds. The authorization doesn't state when they anticipate buying bonds, but when the regulatory comment period expires, they will be a willing buyer to step in and buy as necessary. Note this includes ETFs and mutual funds holding bonds.

Link: http://www.gazette.gc.ca/rp-pr.....2-eng.html

Cheers,
Doug

AltaRed said
P.S. I am only an infrequent investor in corporate bonds and they are all in my RRSP. I have an Enbridge one coming due late this year. Not sure if I will replace it with a GIC or another corporate bond, but if the latter, it has to give me a pretty good premium AND be from a sound company, e.g. a regulated utility, with almost guaranteed cash flow.  

This is key. With this downturn, even the regulated utilities, publicly-owned and privately-owned, are seeing that "almost guaranteed cash flow" dry up in the form of interest-free payment deferrals, payment waivers, forced fee reductions, and the like. So, even they, too, are not safe, and are actually not that attractive yet on a valuation standpoint. I like Fortis Inc. at $40/share, where it still sits. Likewise, Hydro One at $20/share.

Also, the utilities are more highly levered on at least a relative basis than the banks, particularly when you consider much of a bank's leverage is in the form of customer deposits, which are segregated on the bank's balance sheet and they cannot utilize those funds to cover operations.

Cheers,
Doug