A pension fund or a company does not have that tolerance for its monthly pension payments or its semi-weekly payroll payments. They need the funds on maturity date, not a few days or a few weeks later. They are willing to sacrifice a bit of yield for that safety.

zgic said

@AltaRed: You don't buy GoC bonds or GICs (or No bonds at all?) - interesting.
So is there any vehicle you use for fixed income or you do not need that option all together?
Thanks  

Short answer is I don't need much fixed income. I have a small DB pension which covers a portion of fixed monthly costs so that serves as a substitute for fixed income. If that was not the case, I probably would have annuitized a portion of my investment holdings to provide more than what CPP can cover on its own.

I keep a limited (relatively fixed) amount of 'cash equivalents' to mitigate downturns in capital markets but otherwise do not hold a fixed income component of bonds or term deposits. The 'cash equivalents' are money market mutual funds and brokerage ISAs that I do not need to keep track of, manage, etc.

AltaRed said
A GoC bond is as secure as a GIC within CDIC insured limits given that it is ultimately the GoC that could be the backstop of last resort to CDIC in the event of a large FI failure anyway.

I don't compare GIC rates with GoC bond yields very often since I buy neither and it is only curiosity on my part to do the comparison, but what I tend to see is GIC yields slightly better than equivalent GoC yields more often than less. I attribute that to FI competition (or not) for deposit funds in the retail market to fund their loan business, and the fact that GICs are effectively illiquid during their term while bonds are always sellable (liquid) back to the dealer, albeit usually at a costly discount (bid-ask spread).

FWIW, the bond market is huge with bonds being bought and sold every millisecond of the business day, just that they normally are not by the retail market except through bond funds (mutual and/or ETF).  

@AltaRed: You don't buy GoC bonds or GICs (or No bonds at all?) - interesting.
So is there any vehicle you use for fixed income or you do not need that option all together?
Thanks

zgic said

@mordko: I am not sure how much liquidity plays part in fixed income. Because if I am planning to buy and sell a bond than I might as well get into Equities. As I have to do research of future rates etc.
What you'll think about the variables which will go in fixed income?
I think Fixed Income = Yield + Risk (what else do we add)?  

Liquidity might not matter to you personally but it does to a lot of people. Thats why people use HISAs (for example). Equities are not a direct replacement for any type of fixed income, full stop.

And even if one does not plan on it, being able to sell a bond in an emergency is an advantage. I think thats the key reason for GICs offering slightly better rates than GOC bonds. Also, bonds are more convenient for large amounts, so you pay for convenience but suspect that GIC’s illiquidity is the main reason for this delta.

The pension funds park funds for the next several years of monthly pension payments in matching bonds. Pension funds don't wait until the month before to sell stocks to make that payment to pensioners.

Insurance companies use long term bonds to manufacture products like annuities. We discussed how that works earlier.

The board lot for trades in the bond market is $100,000 face value of bonds. The bond desk at one's broker isn't going to call around and access the bond market for small retail buy orders. Those retail orders are filled out of whatever the broker has in inventory.

Sometimes, the brokers inventory runs out. One would like to place $100,000 in a particular bond. But, the broker only has $30,000 of that bond to sell.

That even happens to institutional investors! In February, Fairstone Bank offered $300 million of 3.618% deposit notes, maturing February 23, 2029. Investment dealers received $1.1 billion of orders. Fairstone raised the issue to $400 million and left the rest of the funds on the table.

zgic said
@AltaRed: So looks like I cannot get 3.80% CDIC insured GIC rate from an AAA bond. Also chatgpt said that the CDIC insured GIC is my best option right now for the yield and security.  

A GoC bond is as secure as a GIC within CDIC insured limits given that it is ultimately the GoC that could be the backstop of last resort to CDIC in the event of a large FI failure anyway.

I don't compare GIC rates with GoC bond yields very often since I buy neither and it is only curiosity on my part to do the comparison, but what I tend to see is GIC yields slightly better than equivalent GoC yields more often than less. I attribute that to FI competition (or not) for deposit funds in the retail market to fund their loan business, and the fact that GICs are effectively illiquid during their term while bonds are always sellable (liquid) back to the dealer, albeit usually at a costly discount (bid-ask spread).

FWIW, the bond market is huge with bonds being bought and sold every millisecond of the business day, just that they normally are not by the retail market except through bond funds (mutual and/or ETF).

mordko said

Bonds are not CDIC insured. I would rank GOC bond as slightly more secure than a CDIC insured GIC within the limit, although it can obviously show a temporary loss while GIC would mask it. Would expect slightly higher yield from the “best” GIC. You don’t get liquidity.  

@mordko: I am not sure how much liquidity plays part in fixed income. Because if I am planning to buy and sell a bond than I might as well get into Equities. As I have to do research of future rates etc.
What you'll think about the variables which will go in fixed income?
I think Fixed Income = Yield + Risk (what else do we add)?

zgic said
Thanks Norman1 & AltaRed

@AltaRed: So looks like I cannot get 3.80% CDIC insured GIC rate from an AAA bond. Also chatgpt said that the CDIC insured GIC is my best option right now for the yield and security.  

Bonds are not CDIC insured. I would rank GOC bond as slightly more secure than a CDIC insured GIC within the limit, although it can obviously show a temporary loss while GIC would mask it. Would expect slightly higher yield from the “best” GIC. You don’t get liquidity.

@AltaRed: So looks like I cannot get 3.80% CDIC insured GIC rate from an AAA bond. Also chatgpt said that the CDIC insured GIC is my best option right now for the yield and security.

You would have to sort through their list yourself to see what, if anything, works for you. Never buy anything less than BBB credit quality and none of them are as risk free as CDIC insured deposits, though AA or AA+ is essentially just as good for practical purposes.

I would recommend doing some research on bonds and the nuances of buying and selling them before dipping into them.

Questrade charges a commission of $24.95 per bond trade.

BMO Investorline has Ford Credit Canada 6.382% bonds maturing 2028-Nov-10 for 105.335 to give a yield-to-maturity of 3.871%. They are rated BBB(low) by DBRS, right at the edge between investment grade bonds and junk bonds.

Thank you

I guess the people who shorted Canada are cackling like vultures now.

Dean said
Careful what you with for❗

That's right. No-one wants to see those conditions again that pushed interest rates so high:

Norman1 said
Yes, inflation was a serious problem at that time.

Adding the inflation rate and 5-year GIC rates (from David Trahair's article "GICs and the Inflation Argument" mentioned by Bill earlier) to the table gives a better context for those CSB rates:

Series	Issue Date	1981	1982	1983	1984	1985	1986	1987
S36	01/11/1981	19.50	12.00	10.50	11.25	10.50	10.50	10.50
Inflation (CPI)		12.50	10.90	5.80	4.30	4.00	4.10	4.40
5-year GIC		15.36	14.57	11.52	11.97	10.80	9.73	9.61