Why Are Some Rates Increasing?? | Page 2 | GIC discussions | 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
Why Are Some Rates Increasing??
March 24, 2020
9:46 pm
Norman1
Member
Members
Forum Posts: 3074
Member Since:
April 6, 2013
sp_UserOfflineSmall Offline

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.

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.

March 25, 2020
6:46 am
GR
Member
Members
Forum Posts: 287
Member Since:
September 15, 2017
sp_UserOfflineSmall Offline

GR said
Good news for GIC investors. Surprising and fascinating. In addition to increased rates in my post #1 yesterday, more FIs have now INCREASED GIC rates.

Canadian Tire Bank - another increase today after yesterday's increase (must be desperate?). Range from 1 yr 2.40% to 5 yrs 2.50%.

EQ Bank - Range from 1 yr 2.40% to 5 yrs 2.55%.

Bridgewater Bank - Range from 1 yr 2.31% to 5 yrs 2.52%.

Haventree Bank - Range from 1 yr 2.36% to 5 yrs 2.41%.

Oaken is still the highest, which arouses suspicion.

Explanations?  

One day later and rates for 1 year GICs are up again!
Bridgewater Bank 2.38%
Canadian Tire Bank 2.50%
Haventree Bank 2.46%

March 25, 2020
7:44 am
Doug
British Columbia, Canada
Member
Members
Forum Posts: 3457
Member Since:
December 12, 2009
sp_UserOfflineSmall Offline

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

March 25, 2020
7:49 am
Doug
British Columbia, Canada
Member
Members
Forum Posts: 3457
Member Since:
December 12, 2009
sp_UserOfflineSmall Offline

GR said

One day later and rates for 1 year GICs are up again!
Bridgewater Bank 2.38%
Canadian Tire Bank 2.50%
Haventree Bank 2.46%  

Yes, I suspect that, particularly in Canadian Tire Bank's case, my earlier theory that the corporate credit markets and ability to tap their Glacier Credit Card Trust has been tapped. Although Scotiabank is also a funding source as they've agreed to fund up to 20% of the assets (loans) of Canadian Tire Bank, Scotiabank, too, is likely constrained. Thus, Canadian Tire Bank really has their broker and direct-to-consumer channel on which to rely. Note they aren't raising their HISA rate, which suggests they'd rather lock in those higher-than-normal rates to a fixed term.

Cheers,
Doug

March 25, 2020
7:54 am
Doug
British Columbia, Canada
Member
Members
Forum Posts: 3457
Member Since:
December 12, 2009
sp_UserOfflineSmall Offline

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

March 25, 2020
12:10 pm
savemoresaveoften
Member
Members
Forum Posts: 286
Member Since:
March 30, 2017
sp_UserOfflineSmall Offline

The proper way to think of corporate bond in your investment portfolio is a "enhanced yield GIC that has no principal protection." In other words, only buy with the intention of holding to maturity, and willing to stomach the risk of it going to zero like a stock.

Re government stepping in to buy corp bonds, that will benefit banks / corp that has a position to unload (for liquidity reasons and etf rebalancing) and unable to find a buyer. The Mr and Mrs Smith's only access to the market are via dealers, which will continue to show a wide bid /offer spread (if u can see a bid that is). Obviously if you own a good 6figure or more of a particular issue, you can also ask ur IA / rep to call the bond desk for a better price if possible.

No permission to create posts

Please write your comments in the forum.