Cheap easy way to buy Government of Canada T-Bill/Bonds? | General financial discussion | Discussion forum

Please consider registering
guest

sp_LogInOut Log In sp_Registration Register

Register | Lost password?
Advanced Search

— Forum Scope —




— Match —





— Forum Options —





Minimum search word length is 3 characters - maximum search word length is 84 characters

No permission to create posts
sp_Feed Topic RSS sp_TopicIcon
Cheap easy way to buy Government of Canada T-Bill/Bonds?
October 14, 2022
8:59 am
co
Member
Members
Forum Posts: 70
Member Since:
August 6, 2018
sp_UserOfflineSmall Offline

Let's say for whatever reason the CDIC insurance just won't cut it (e.g. did not win Tangerine lottery; believe in imminent financial collapse, etc.) and I want the theoretically safest place to put my CAD: Government of Canada bonds.

My questions are:
1. Is there a way to buy T-Bills/bonds directly? Like the Canada Savings Bonds. Online stock brokers seem to charge a ridiculous bid-ask spread/commission. Anyone knows a good broker for bonds?
2. Alternatively, are there any ultrashort duration ETF/funds for Government of Canada bonds? Like SGOV and BIL in USD.

And the yield looks great too: on October 11 2022 the yields for treasury bills auctions were similar or even better than many financial institutions:
3 month: 3.83%
6 month: 4.11%
1 year: 4.31%

When 3 month CAD T-bill is yielding 3.83%, I don't even want to bother chasing the HISA promotions.

Longer duration are inverted, but just for the record, the benchmark bond yields on October 13 2022:
2 year: 4.11%
3 year: 4.03%
5 year: 3.59%
7 year: 3.44%
10 year: 3.41%
Long-term: 3.33%
Real return bond long-term: 1.58%

October 14, 2022
9:10 am
AltaRed
BC Interior
Member
Members
Forum Posts: 2785
Member Since:
October 27, 2013
sp_UserOfflineSmall Offline

I don't know about cheap, but at Scotia iTrade, on the Canada's Money Market tab at this moment, it lists durations as low as 15 days right through 11 months. Yields starting at 3.87% (Oct 27) to 3.91% (Jan 19) to 4.25% (Sept 14). They are all sold at a discount to $100 at maturity.

I have never bought them but I am guessing there is a minimum $24.99 commission (or $1/1000) to buy, and if so, that has to be factored into what one's net yield would be. I have never asked about commissions for Tbills.

October 14, 2022
10:47 am
HermanH
Member
Members
Forum Posts: 1138
Member Since:
April 14, 2021
sp_UserOfflineSmall Offline

con6450 said
And the yield looks great too: on October 11 2022 the yields for treasury bills auctions were similar or even better than many financial institutions:
3 month: 3.83%
6 month: 4.11%
1 year: 4.31%

When 3 month CAD T-bill is yielding 3.83%, I don't even want to bother chasing the HISA promotions.

Can someone explain how a 1-yr T-bill yielding 4.31% is better or worse than a 1-yr GIC yielding 4.80%? Is it tax considerations or am I missing something?

October 14, 2022
10:54 am
Norman1
Member
Members
Forum Posts: 6675
Member Since:
April 6, 2013
sp_UserOfflineSmall Offline

The one-year treasury bill is a direct obligation of the Government of Canada. No question legally that it is backed by the Government of Canada.

October 14, 2022
10:54 am
co
Member
Members
Forum Posts: 70
Member Since:
August 6, 2018
sp_UserOfflineSmall Offline

HermanH said

con6450 said
And the yield looks great too: on October 11 2022 the yields for treasury bills auctions were similar or even better than many financial institutions:
3 month: 3.83%
6 month: 4.11%
1 year: 4.31%

When 3 month CAD T-bill is yielding 3.83%, I don't even want to bother chasing the HISA promotions.

Can someone explain how a 1-yr T-bill yielding 4.31% is better or worse than a 1-yr GIC yielding 4.80%? Is it tax considerations or am I missing something?  

1. If you are worried about the solvency of the financial institution, once you exceed the CDIC limit or you don't trust CDIC to begin with.

2. With the right broker/means a government bond should be liquid. You don't have to hold it for the full duration. But I don't know how accessible this is to individuals, which is basically my question.

If you trust CDIC and don't care about (potential) liquidity, GIC is perfectly fine, in my understanding.

October 14, 2022
11:06 am
HermanH
Member
Members
Forum Posts: 1138
Member Since:
April 14, 2021
sp_UserOfflineSmall Offline

con6450 said
If you trust CDIC and don't care about (potential) liquidity, GIC is perfectly fine, in my understanding.  

If that is the case, aren't you settling for less return? Instead of 4.80% on a GIC, you only get 4.31% on the T-Bill, a difference of almost 1/2%

I do understand that a T-Bill might be sold before the end of a year, but am assuming it to be held for an entire year, for the purpose of this discussion.

Are T-Bill yields taxed differently from GIC interest? Is there a capital gains component?

October 14, 2022
11:14 am
Norman1
Member
Members
Forum Posts: 6675
Member Since:
April 6, 2013
sp_UserOfflineSmall Offline

Government of Canada does not sell its treasury bills or bonds directly to the public. They are sold by auction to certain authorized distributors.

Standard Terms for Auctions of Government of Canada Securities has the details about the auctions. Bank of Canada: Government Securities Auctions has other details about the treasury bills and marketable bonds.

One isn't going to get 3.83% on three-month treasury bills unless one purchases a large number of $100,000 board lots of them.

Scotia iTRADE charges commission of $1 per $1,000 bond. Minimum $24.99, maximum $250.

For $25,000 to $250,000, one will be paying net

99.169 + 0.100 = 99.269% of face value

for the 2023/01/05 bills maturing in 83 days. Settlement is T+1 days. That works to be a yield about 3.28% per annum instead of the wholesale 3.83%.

October 14, 2022
11:21 am
co
Member
Members
Forum Posts: 70
Member Since:
August 6, 2018
sp_UserOfflineSmall Offline

HermanH said
Are T-Bill yields taxed differently from GIC interest? Is there a capital gains component?  

I never looked into the tax component. I just assumed it's the same as regular interests/GIC. Correct me if someone knows.

HermanH said
If that is the case, aren't you settling for less return? Instead of 4.80% on a GIC, you only get 4.31% on the T-Bill, a difference of almost 1/2%

Yes one would be settling for less return. That's why I set the premise of the discussion as "CDIC insurance just won't cut it," i.e. if I am only considering federal government debt, not considering GICs, how can I access this market?

My personally rule of thumb is within 0.5%, I go for the most "insured" option. Sometimes one cares more about "return of money" than "return on money".

But you do have an important practical point, and here is what I would do:

If I am locking in for 1 year, and my amount does not significantly exceed the CDIC limit, I'd go for a Tangerine 1-year 4.7%. I agree with you.

But what if I only want to commit to 3 months or max 6 months, and I am not getting any of the temporary promotions? The only decent option I know is Hubert, which is 4.10%-4.20%, but do I really trust Hubert with whatever deposit insurance they have, especially as a non-Manitoba resident? Personally, I am more than willing to take 3.8% from the Federal government for 3 months, if there is a cheap and easy way to access it, versus 4.1% from anyone else.

October 14, 2022
11:24 am
HermanH
Member
Members
Forum Posts: 1138
Member Since:
April 14, 2021
sp_UserOfflineSmall Offline

Norman1 said
One isn't going to get 3.83% on three-month treasury bills unless one purchases a large number of $100,000 board lots of them.

Okay, instead of a 1-yr t-bill, let's me ask the difference between buying a 3-mo t-bill for 3.83% as opposed to a 3-mo GIC for 4%.

Other than the commission charge (which should make the t-bill even less attractive), why would anyone forgo the 0.17% difference and purchase a t-bill?

October 14, 2022
11:28 am
co
Member
Members
Forum Posts: 70
Member Since:
August 6, 2018
sp_UserOfflineSmall Offline

HermanH said

Norman1 said
One isn't going to get 3.83% on three-month treasury bills unless one purchases a large number of $100,000 board lots of them.

Okay, instead of a 1-yr t-bill, let's me ask the difference between buying a 3-mo t-bill for 3.83% as opposed to a 3-mo GIC for 4%.

Other than the commission charge (which should make the t-bill even less attractive), why would anyone forgo the 0.17% difference and purchase a t-bill?  

Government of Canada, for all purposes, guarantees return of my money after 3 months. PACE Credit Union/Lehman Brothers doesn't.

October 14, 2022
11:28 am
HermanH
Member
Members
Forum Posts: 1138
Member Since:
April 14, 2021
sp_UserOfflineSmall Offline

con6450 said
My personally rule of thumb is within 0.5%, I go for the most "insured" option. Sometimes one cares more about "return of money" than "return on money".

Okay, you value the unlimited and guaranteed premium offered by the Govt of Canada t-bill at 0.5%

Seems a bit steep for me, but I understand your reasoning. Thank you.

October 14, 2022
11:30 am
AltaRed
BC Interior
Member
Members
Forum Posts: 2785
Member Since:
October 27, 2013
sp_UserOfflineSmall Offline

No need for account proliferation. There are many reasons why I wouldn't have accounts spread out over more than 1 or 2 of the FIs present on the HISA/GIC lists herein. The 1-6 month Tbill options look reasonably attractive today.

Added: Thanks to Norman1 for the calculation. The 3.28% compares to 3.05% for the Scotia DYN6004 Cl F ISA at the current time albeit one could squeeze a bit more going for perhaps a 6 month term. The difference isn't enough for me to consider moving from DYN6004.

October 14, 2022
11:35 am
co
Member
Members
Forum Posts: 70
Member Since:
August 6, 2018
sp_UserOfflineSmall Offline

Norman1 said

One isn't going to get 3.83% on three-month treasury bills unless one purchases a large number of $100,000 board lots of them.

Scotia iTRADE charges commission of $1 per $1,000 bond. Minimum $24.99, maximum $250.

For $25,000 to $250,000, one will be paying net

99.169 + 0.100 = 99.269% of face value

for the 2023/01/05 bills maturing in 83 days. Settlement is T+1 days. That works to be a yield about 3.28% per annum.  

Thanks for looking into the example. I don't have an account with them, so this is really useful. They claim they have "no markups or hidden fees," so if it is just 0.1% of commission this is quite doable, in my opinion, for longer duration.

October 14, 2022
2:33 pm
Norman1
Member
Members
Forum Posts: 6675
Member Since:
April 6, 2013
sp_UserOfflineSmall Offline

AltaRed said
… The 3.28% compares to 3.05% for the Scotia DYN6004 Cl F ISA at the current time albeit one could squeeze a bit more going for perhaps a 6 month term. The difference isn't enough for me to consider moving from DYN6004.

If one can commit to six months and two weeks, there are the 2023/04/27 treasury bills maturing in 195 days. Scotia iTRADE asking 97.871. T+1 settlement. Yield after commission would be

[100/(97.871 + 0.100) - 1] * 365 / 194 = 3.897%

October 14, 2022
2:47 pm
savemoresaveoften
Member
Members
Forum Posts: 2742
Member Since:
March 30, 2017
sp_UserOfflineSmall Offline

HermanH said

con6450 said
My personally rule of thumb is within 0.5%, I go for the most "insured" option. Sometimes one cares more about "return of money" than "return on money".

Okay, you value the unlimited and guaranteed premium offered by the Govt of Canada t-bill at 0.5%

Seems a bit steep for me, but I understand your reasoning. Thank you.  

Thats like 200-1 odds in terms of insurance prem that CDIC will fail and cover 0% of the $100k principal.
That is very very steep in my mind, but its not my money nor my business to assign the odds.

October 15, 2022
8:57 am
Norman1
Member
Members
Forum Posts: 6675
Member Since:
April 6, 2013
sp_UserOfflineSmall Offline

con6450 said

Thanks for looking into the example. I don't have an account with them, so this is really useful. They claim they have "no markups or hidden fees," so if it is just 0.1% of commission this is quite doable, in my opinion, for longer duration.

You may also check BMO InvestorLine to see if you will end up with a better net price on particular purchases of treasury bills.

Scotia iTRADE charges $1 for each $1,000 bond (0.1%). Minimum $24.99, maximum $250. That $24.99 minimum has a significant impact on net yield for something like a 30-day treasury bill. 0.1% commission on a 30-day bill will knock off around 1.2% off the quoted yield.

In contrast, BMO InvestorLine doesn't disclose its fixed income commission schedule:

Bonds, T-Bills, GICs, Strip coupons

Commissions, if any, are included in the quoted price. You may enjoy additional savings for online fixed income trades.

Quoted price is the net price. The amount of the embedded commission is disclosed on the trade confirmation slip. BMO InvestorLine doesn't have a $24.99 minimum commission. I've seen embedded commissions of $10 and even $0!

October 15, 2022
9:30 am
AltaRed
BC Interior
Member
Members
Forum Posts: 2785
Member Since:
October 27, 2013
sp_UserOfflineSmall Offline

On bonds and Tbills, or Tbills only per current discussion? I could be interested since my only 'cash' option I use right now at BMOIL is BMT104 @ 2.9%.

Anecdotal experience from others suggests very large commissions on multi-year bonds at BMO IL. I have never purchased a bond in my account at BMO IL because of it, albeit I don't buy anything under $20-30k at a time and it is normally a corporate A or BBB bond of 5+ years duration.

October 15, 2022
9:46 am
co
Member
Members
Forum Posts: 70
Member Since:
August 6, 2018
sp_UserOfflineSmall Offline

AltaRed said
On bonds and Tbills, or Tbills only per current discussion? I could be interested since my only 'cash' option I use right now at BMOIL is BMT104 @ 2.9%.

Anecdotal experience from others suggests very large commissions on multi-year bonds at BMO IL. I have never purchased a bond in my account at BMO IL because of it, albeit I don't buy anything under $20-30k at a time and it is normally a corporate A or BBB bond of 5+ years duration.  

I can't seem to find if BMO InvestorLine offer some sort of simulation account that I can see their quotes and interface. Would it be possible for you to login in and share something representative (yield and commission)? If not no worries.

October 15, 2022
10:13 am
Norman1
Member
Members
Forum Posts: 6675
Member Since:
April 6, 2013
sp_UserOfflineSmall Offline

BMO InvestorLine does not show quotes of their fixed income inventory after hours. One needs to sign in during the trading day.

Yes, the commissions are embedded in all their fixed income quotes, including for bonds. The embedded commission will be disclosed when one starts entering a buy order.

These treasury bill quotes are from BMO InvestorLine yesterday for a prospective purchase of $20,000. Their minimum treasury bill purchase is $5,000:

Maturity Price
27-OCT-2022 (13 days) 99.940 (Yield 1.686%)
05-JAN-2023 (83 days) 99.325 (Yield 2.989%)
27-APR-2023 (195 days) 98.057 (Yield 3.709%)
October 15, 2022
10:59 am
Norman1
Member
Members
Forum Posts: 6675
Member Since:
April 6, 2013
sp_UserOfflineSmall Offline

con6450 said

I never looked into the tax component. I just assumed it's the same as regular interests/GIC. Correct me if someone knows.

There is only regular interest when one holds a discount note, like a treasury bill or a strip bond, to maturity.

There could be a capital gain or capital loss part when one sells before maturity. There is a calculation to determine what the deemed interest is, for tax purposes, for the holding period. Selling price, less deemed interest, and less purchase price is a capital gain or loss.

No permission to create posts

Please write your comments in the forum.