Investment Solutions

Detailed information on discount brokerage accounts and investment solutions available for investing success


Bonds trade in denominations of $1,000 and are quoted in lots of $100. When trading bonds, you may buy them at par, at a premium or at a discount. “At par” means that the amount you pay today is the amount you will receive at maturity ($1,000 today for $1,000 at maturity), regardless of the interest payments. When the price is inferior to par, the bond is said to have been purchased at a discount; when the price is higher than par, it is said to be at a premium.

The price of a bond is determined by its return, which is in turn influenced by the interest rates established by the central bank. For instance, a bond that trades at $102.50 means that for each $100 of nominal value, you pay $2.50 more than the initial issuance price. At maturity, you will receive $100 and claim a capital loss of $2.50 per bond. The fact that you receive interest income (called coupons) is what leads to an overall positive return in the end.

Finding a bond’s market value

To obtain a bond’s market value, it is important to first understand that there are two main categories of bonds:

  • Savings bonds
  • Debt securities issued by governments or companies

Debt securities can be purchased on the secondary market, while it may be possible to find some on the primary market (mainly for municipal bonds). The price of such a bond will therefore reflect its current market value, which is based on supply and demand, as well as the bond’s interest coupon.

Savings bonds can be purchased at par (nominal value), and pay periodic interest, depending on the rates in effect. It is not as much the value at which they trade that is important, but the return that they provide at maturity.

Since bonds trade either at par, at a premium or at a discount, a bond’s market value will have considerable effect on its return at maturity. For instance, a bond with a 4% coupon will not yield the same return if it is purchased at par (return of 4%) or at a premium (return of less than 4%).

You can find a bond’s market value and return in the National Bank Direct Brokerage inventory.

On the main page, you will find estimated rates of return at maturity, such as:

In this example, the value of a New Brunswick provincial bond coming to term on July 21, 2016 is $111.66017 (it is trading at a premium). The coupon of this bond is 4.7%, and its annual return is 1.043%.

In our quotes, we also show the semi-annual bond return, which takes into account the fact that the interest amount paid out semi-annually will not necessarily be invested at the same interest rate level as the coupon. For that reason, the semi-annual return is usually less than the annual return.

Note that the minimum amount that can be invested in fixed income securities is $5,000.

The different types of bonds

There are several types of bonds: government, municipal, corporate or specialized. The most common are:

  • Government bonds
  • Canada Savings Bonds (CSBs) are securities issued by the Canadian Treasury and managed by the government itself. They are therefore not available for purchase on the secondary market. With a fixed maturity date and interest rate, they are non transferable or negotiable and as such, their price does not fluctuate. However, since they can be redeemed at any bank in Canada at their face value plus any accrued interest (if applicable); they are considered a risk-free, liquid investment.

    Contrary to other bonds, CSBs can only be purchased from October to April of each year. It is important to know that if you cash in your bond during the month; you lose the interest accrued for that month.

    Since October 2012, Canadian financial institutions no longer offer CSBs; only Canada Premium Bonds (CPBs) are available at these institutions. It is however possible to cash in older bonds. 

    Canada Premium Bonds (CPBs) are very similar to CSBs, but offer a higher rate of return at issue. They can be redeemed without penalty on the anniversary of the issue date or within the following 30 days. Since October 2012, CPB terms have changed from ten to three years.

    Québec Savings Bonds are only available to Québec residents and in registered accounts (except the TFSA). However note that this product is subject to periodic review on your account statement; it is therefore difficult to obtain a current market value for this investment.

    Ontario Savings Bonds are offered exclusively to Ontario residents, and are available in three versions: Step-Up (with an interest rate that increases over time), Variable Rate, or Fixed Rate. Step-Up bonds allow you to obtain a minimum progressive rate that is guaranteed for the duration of the term. They can be redeemed twice a year. Variable-rate bonds offer a fixed rate determined by market rates for the first six months following issuance. A new rate is then established, and remains in effect for a specific period before maturity. Variable-rate bonds can be redeemed once a year. Finally, fixed-rate bonds offer a fixed interest rate for the total duration of the bond, but they cannot be redeemed before maturity.

  • Municipal bonds
  • Municipal bonds rank third among the different forms of public borrowing, after federal and provincial bonds. However, this does not mean that the credit ratings of municipalities are lower that those of provinces.

    A municipality’s credit rating depends on its tax resources, and the guarantee offered depends on the municipality’s property tax base. In short, the greater the number of taxpayers there are and the stronger their financial situation is, the better the guarantee. All else being equal, a municipality with a varied industrial base is a less risky investment than a municipality that depends on a single, large industry.

    Several provinces guarantee bonds issued by the organizations and boards they have established (public and parapublic). Many provincial guarantees extend to municipalities and school boards.

    Municipal bonds usually pay interest coupons every six months. So, if you purchase a bond with a nominal value of $10,000 and a 3% interest rate, you will receive a payment of $150 every six months.

  • Corporate bonds
  • Companies seek new capital for various reasons, and the bonds they issue are debt securities guaranteed by their capital assets, and physical and non-physical securities.

    Corporate bonds usually pay interest coupons every six months. So, if you purchase a bond with a nominal value of $10,000 and a 3% interest rate, you will receive a payment of $150 every six months.

  • Specialized bonds
  • Step-up bonds are securities that offer a progressive interest rate and are issued by the federal and provincial governments, crown corporations and chartered banks. These securities often contain a clause with a call feature, which can be exercised after a predetermined period. Because they can be redeemed at the issuer’s option, the rate offered for the first year is always very attractive in order to appeal to investors. Interest may be paid semi-annually or monthly, depending on the issue.

    The Government of Canada also issues real-return bonds. The nominal yield on these bonds is linked to the consumer price index (CPI). The semi-annual interest payments and the redemption value of each bond are calculated taking into account inflation compensation. For instance, if inflation increases by 1.5% six months following issuance, the value of a $1,000 real return bond at the end of the six-month period would be $1,015. The semi-annual interest payment would therefore be calculated using this new amount, rather than the initial value of the bond. At maturity, the original face value of the bond would be multiplied by the cumulative inflation rate registered since the date of issue to obtain the final yield at maturity.

    It is important to remember that bonds are debt securities and that the interest rate that the issuer must pay to obtain financing mainly depends on its repayment capacity, i.e., its credit rating. Below is a table highlighting the different credit ratings that can be attributed to a corporation. Please note that these ratings are determined by the DBRS, a renowned rating agency, and can be found when you search for bonds in our inventory (available only for corporate bonds).

    Highest credit quality 
    Good credit quality 
    Good credit quality 
    Adequate credit quality 
    Speculative, non investment-grade credit quality 
    Highly speculative credit quality
    Very highly speculative credit quality 
    Very highly speculative credit quality 
    Very highly speculative credit quality 
    A financial obligation has not been met by the issuer
    high et low  Refers to the superior or inferior part of the rating (e.g., a low A is inferior to an A). 

    * According to DBRS, there is very little different between these three categories, For CC and C ratings, the default risk is highly likely.

The benefits of bonds

Bonds are generally safer than stocks since bondholders are considered to be creditors and therefore have priority over shareholders in the event of bankruptcy. The advantage of a semi-annual interest payment is also more attractive to some investors, not to mention the fact that the yield at maturity is known at the time of purchase (if the bond is held until maturity and rates determined at the time of issuance). Risk is assessed through the issuer’s credit rating, which is assigned by a credit rating agency. It is therefore easier to determine the value of the product.

Fixed income securities are useful in any portfolio management strategy, as they provide added diversification without the risk typically associated with stock markets. Furthermore, there is a certain tax efficiency to purchasing such a product at a premium (a capital loss must then be reported). This loss can be applied against a capital gain, if any.

Risks associated with bonds

The main risk of bonds is the issuer’s default. Also, some bonds are redeemable at the issuer’s option at any time. It is therefore important to read the prospectus before purchasing the product.

Finding the right bond for your situation

You can use filters to search through available bonds and build a list of securities that match your criteria

This filter is integrated to your National Bank Direct Brokerage account, under Transactions – Fixed Income Securities. This tool is very useful if, for instance, you wish to generate a list of all corporate bonds with a four-year duration.

Borrowing to purchase bonds

You can use a margin account to trade bonds. To learn more about margin accounts, please visit our dedicated brokerage account page.

With your National Bank Direct Brokerage account, it’s easy to trade bonds online.

  • First, click on Transactions – Fixed Income Securities and a transaction page will open.
  • Then, specify the investment amount and click on the rate you wish to obtain.
  • Once you’ve found the product you want, simply click “Trade” and a transaction page will open.
  • Verify the information to make sure you haven’t made any mistake, and click “Confirm”.

Once your order has been submitted, you may view it under Transactions – Current Orders and Instructions.

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