What kind of bonds can I buy in Canada?
There are a number of different types of bonds for investors to choose from, including:
- Government of Canada Bonds.
- Provincial Bonds.
- Municipal Bonds.
- Investment-Grade Corporate Bonds.
- High-Yield Bonds.
- Strip Coupons and Residual Bonds.
Are strip bonds safe?
Like their whole bond equivalents, strip bonds are evidence of a debt. Consequently, strip bonds created from high-quality government bonds and cor- porate debentures offer a high degree of security. As strip bonds are discount securities, an investor pays the present value of the maturity amount.
Why are bonds stripped?
A strip bond is a debt obligation whose principal and coupon payments are removed (or stripped) by investment firms or dealers and sold separately to investors. Because no payments are made before maturity, a strip bond has no reinvestment risk.
What is the difference between fixed-income and bonds?
Fixed-Income securities are debt instruments that pay a fixed amount of interest—in the form of coupon payments—to investors. The interest payments are typically made semiannually while the principal invested returns to the investor at maturity. Bonds are the most common form of fixed-income securities.
What is a strip bond Canada?
A Government of Canada or provincial government bond may be purchased by an investment firm, which will then physically remove the interest coupons from the bond and in doing so, create a series of individual notes with specific maturity dates commonly referred to as stripped bonds.
What is a strip yield?
The stripped yield is the return on the bond component after subtracting any value or return related to the equity, warrant, or option component of the instrument from the market price. This is done by discounting the value of the collateral cash flows at the U.S. Treasury rate.
What is bond reconstitution?
Reconstitution is the reverse of stripping, where the coupon strips and principal strips are reassembled into the original government security.
What kind of bond is a residual bond?
A residual interest bond (RIB), also known as an inverse floater or inverse floating-rate bond, is a municipal bond that has been split into two segments. The first segment of a RIB is a residual inverse floating-rate bond and the second segment is a primary direct floating-rate bond.
How does residual interest work in municipal bonds?
Residual interest bonds (RIBs) enable municipal bond funds to promise higher current yields to their buyers. As rates on municipal bonds rise, holders of RIBs will own bonds which pay a lower coupon, or yield. This dropping yield drastically reduces the price of the bond on the secondary market.
Which is better inverse floater or residual interest?
Buyers of residual-interest bonds receive a higher interest rate than a conventional municipal bond would provide. However, the risk of these securities is elevated. An investor who holds an inverse floater maintains all of the underlying bond’s downside risk.
What does a rib do to a bond?
RIBs enable municipal bond funds to promise higher current yields to their buyers. As rates on municipal bonds rise, holders of RIBs will own bonds that pay a lower coupon, or yield. This dropping yield drastically reduces the price of the bond on the secondary market .