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Bonds can help you build a balanced portfolio, while generating retirement income and reducing your exposure to volatility. To help you get more out of your fixed income investing, Scotia iTRADE offers:
- Simplified, transparent pricing– $1 a bond ($1 per $1,000 Face Value, $24.99 min/$250 max)1 with no markups or hidden fees. See the difference
- Large inventory of fixed income products, including Canadian and U.S. bonds, corporate bonds, strip bonds, t-bills, high-yield bonds and more
- Competitive bond marketplace comprising different liquidity providers so you can take advantage of truly competitive pricing
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- View our extensive Bond Inventory
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Also refer to our Fixed Income pricing and our entire Commission & Fee Schedule.
A bond is a debt instrument issued usually by a Government or a Corporation at Face Value, also known as Par Value. The buyer of the bond is paid interest, the Coupon Rate, usually semi-annually – this is the buyer's return or yield on the bond. Upon maturity, the buyer of the bond is repaid their original investment at face value or par.
An investor purchases $50,000 in Government of Canada bonds that mature in 5 years. The buyer is paid semi-annual interest payments over the course of those 5 years and then redeems the bonds' full face value of $50,000 when the bonds mature. Coupon payments (or interest payments) vary.
Bonds are also resold at varying prices according to market conditions, between buyers. However, when bonds are purchased between coupon payments, the buyer must pay the seller the Accrued Interest (or accumulated interest) from the last coupon payment until the transaction settlement date. The buyer will then receive a full interest payment at the next coupon date, redeeming the accrued interest they paid at purchase.
Interest due from issue date or from the last coupon date to the security settlement date. Interest that has accumulated on a bond since its most recent regular interest payment date. The buyer of the security pays the accrued interest to the seller and recoups a full payment on the next payment date.
The process where, as time passes, your fixed income investment moves inexorably to its face value or maturing value.
The maturing principal of a bond issue.
The Canadian equivalent of the discount rate. This is the minimum rate of interest that the Bank of Canada charges on one-day loans to financial institutions. In December 2000, the Bank began setting the level of the Bank Rate – and with it, the target for the overnight rate – on eight fixed dates per year.
1/100 of a percentage point. It is often used to explain changes in bond yields. A 12 basis points increase in yield would mean a yield increase of 0.12 percentage points (e.g. 6.24 percent to 6.36 per cent is an increase of 12 basis points).
This refers to bonds by which others are valued. The Bank of Canada issues bonds at strategic maturity points (typically two, three, five, 10 and 30 years). When issuers bring new bonds to market, the presence of the Bank of Canada issues makes pricing easier since accurate market yields are readily available as references or benchmarks.
The highest price a prospective buyer or dealer is willing to pay.
The quantity (face value) of a security the highest bidding buyer wants to purchase.
The yield at which the highest bidding buyer is willing to purchase a security.
Evidence of a debt that is owed by a borrower who has agreed to pay a specific rate of interest, usually for a defined time period. At the end of that period the debt is repaid. Legally, a bond has assets pledged against the loan. In practice, the word is applied to any kind of term debt, collateralized or not.
An order to purchase a security.
A bond that can be redeemed by the issuer, prior to its maturity date. Certain conditions have to be met.
The price at which a callable bond can be bought back by the issuer.
Certificate of deposit
A fixed income security issued by a chartered bank. Minimum purchase amount is usually $1000 with terms of from one to seven years.
Short-term debt instruments issued by non-financial corporations. They have maximum maturities of one year.
A bond containing a provision that permits conversion to the issuer's common stock at some fixed exchange ratio.
- The annual rate of interest on the bond's face value that a bond's issuer promises to pay the bondholder. That portion of a bond that provides the holder with an interest payment at a pre-specified rate. Quoted at an annual rate, but usually paid semi-annually.
- A certificate attached to a bond evidencing interest due on a payment date.
The Committee on Uniform Security Identification Procedures, which was established under the auspices of the American Bankers Association to develop a uniform method of identifying municipal, government and corporate securities.
A dealer, as opposed to a broker, acts as a principal in all transactions, buying and selling for his own account.
A debt that is secured solely by the general creditworthiness of the issuer and not by the collateralization or lien against specific assets.
Short-form notation used to distinguish a particular issue. Typically follows the following protocol Issuer_Coupon_Maturity (i.e. CAN 8.75 12/05).
Information data set. Contains the CUSIP number, Description, Bid Price, Ask Price, Bid Yield, Ask Yield, Bid Size, Ask Size, Coupon, Maturity and Credit Ratings (CBRS, Moody's and S&P).
The amount by which a bond sells below its par (or maturity) value.
Non-interest bearing money market instruments that are issued at a discount and redeemed at maturity for full face value; e.g. Treasury bills.
Downward yield curve
This refers to an abnormal yield curve where the shorter the term to maturity, the higher the yield. It occurs typically when a central bank is determined to snuff out an inflationary cycle.
The average life of your fixed income investment. A ten-year bond is not exactly a ten-year bond. All the interest payments shorten the average term. The bigger the interest payments, the shorter the duration. For a zero coupon bond, maturity and duration are the same since there are no cash flows to worry about. This term is used in measuring risk.
An issue with a stated maturity date that under specific conditions gives the holder the right to extend the maturity for a further period.
Underlying principal amount of a security. The value of a bond that appears on the face of the certificate. It is almost always the maturity value of the bond. It is not an indication of current market value.
Flat yield curve
This refers to a yield curve where yields are the same at all maturities. 'Flat' can also mean that a bond is trading with no accrued interest, either because the settlement date coincides with the coupon payment date or else the issuer is not able to make interest payments.
Humped yield curve
This refers to a yield curve where some anomaly pushes yields at one or more maturity dates out of line with surrounding maturities.
The entity (government or corporation) that borrowed the capital and is responsible for repaying the bondholder.
A bond that pays interest only when earned by the issuer.
To facilitate the retail and institutional clients, investment dealers maintain inventory of 'shelf products' financed with their own capital and which are offered at competitive prices.
Approved money market dealers who must bid for each week's treasury bill auction.
An order that is restricted in price.
Long term bond
One that matures in more than 10 years.
Make a market
A dealer is said to make a market when he quotes bid and offered prices at which he stands ready to buy and sell.
An order that is priced to move with the current market price. It must be executed as soon as possible at the best possible price.
The date on which the security matures is the day that the issuer must repay the amount borrowed plus interest to the holder of the note.
Medium term bond
One that matures in from 3 to 10 years.
A wholesale, financial market specializing in low risk, highly liquid debt instruments (bills, commercial paper, bankers' acceptances and corporate paper) with terms to maturity of less than 1 year.
Method of credit analysis. A guide of relative bond value.
Securities issued by local governments and their agencies.
Municipals (MUNI) notes
Short term notes issued by municipalities in anticipation of tax receipts, proceeds from a bond issue, or other revenues.
The price at which a dealer will sell the securities.
The quantity (face value) of a security that is offered for sale.
The yield at which a security is offered for sale.
Off the run
This refers to a bond issue that is not a 'benchmark issue'. It may have a very high or low coupon, it may be a small illiquid issue, its ownership may be concentrated in few hands or it may have a feature, which makes it unattractive to trade. The bid-ask spread will be wider for such an issue, because dealers either do not wish to hold them in inventory or if they do, find it difficult to sell them quickly.
An order is an expression of interest to either buy or sell an instrument.
Over the counter
This essentially means 'not centralized'. Unlike the equity market, which has a recognizable physical location to trade stocks, the bond market is decentralized, without one meeting place; transactions occur verbally or electronically between markets.
- Price of 100%.
- The principal amount at which the issuer of a debt security contracts to redeem that security at maturity, face value.
The stated face value of a bond. It has no connection with the same expression that sometimes relates to common stocks. Also referred to as Face Value or Par.
Positive yield curve
This refers to a 'normal' yield curve, one in which the longer the term to maturity, the higher the yield.
The dollar amount one or more parties are willing to pay/receive to purchase/sell a security. Price is typically expressed per $100 of Par Value.
What you lend. This value is expected to be returned to you at the bond's maturity date.
Securities issued by provincial governments and their agencies.
An indication of interest to either buy or sell.
This is similar to callable bonds but with one huge difference. Normally issued by corporations, a redeemable bond may be 'called' by the issuer but not for financial advantage; in other words, the issue may not be redone at a lower coupon rate. Rather, should a company have surplus cash or in the event of a corporate development the bond issue may be retired prematurely.
There are two basic risks. The first is that the yield to maturity quoted on a bond may not be realized, since all interest payments never get reinvested at the same rate. Second, you will experience this risk if you have your entire portfolio maturing at the same time, and rates have fallen dramatically.
The principal portion left over after all the interest payments have been stripped away.
An issue that gives the holder the option, under certain circumstances, to redeem his holdings at their face value, prior to the final maturity date.
An order to sell a security.
The month, day, and year the transaction will settle. As per industry standards, settlement usually occurs 3 business days after trade date ("T+3") for Equities.
Fixed Income securities settle as follows:
- Canadian, US T-Bills and Commercial Paper: T+1
- GOC Bonds with an unexpired term of 3 years or less to maturity: T+2
- All other Fixed Income instruments, including all Strip Bonds: T+3
The sale of securities not owned by the seller in the expectation that the price of these securities will fall or as part of an arbitrage. A short sale must eventually be covered by a purchase of the securities sold.
Indentures governing corporate issues often require that the issuer make annual payments to a sinking fund, the proceeds of which are used to retire randomly selected bonds in the issue.
- Difference between bid and offered prices on a security.
- Difference between yields on (or prices of) two securities of differing sorts or differing maturities.
- In underwriting, difference between price realized by the issuer and price paid by the investor.
- Difference between two prices or two rates. What a commodities trader would refer to as the basis.
A bond that has had all its coupons removed, thus creating a series of zero coupon issues, the maturity dates of which are the interest payment dates of the coupon, as well as the originally established maturity date. Generally sold at a discount.
For more information, please refer to section 2.11. in our Relationship Disclosure Document and Terms and Conditions.
Information data set. Contains the CUSIP number, Description, Bid Price, Offer Price, Bid Yield, Offer Yield, Bid Size, Offer Size.
A trade is a transaction. A trade has a buyer and a seller as well as a price and quantity.
The date on which a transaction is initiated. The settlement day may be the trade date or a later date.
Discount instruments issued by the federal government at a weekly auction. The T-bills generally have original maturities of 13 weeks (3 months), 26 weeks (6 months) and 52 weeks (1 year).
Market in which both a bid and an offered price, good for the standard unit of trading, are quoted.
Market in which both a bid and an offered price are quoted.
How much the price of a bond changes for a given movement in yield.
The interest rate expressed as an annual percentage that the funds will earn or cost over the term of the security.
The relationship between the various maturities of same credit quality issues. The curve for Government of Canada bonds sets the base of relationships for the Canadian market. For a description of the various forms of yield curves, please see Downward yield curve, Flat yield curve, Humped yield curve and Positive yield curve.
Yield to maturity
The rate of return yielded by a debt security held to maturity when both interest payments and the investor's capital gain or loss on the security are taken into account. The return that an investor will receive if an issue is held to its maturity date and all coupons, as they are received, are re-invested at that yield level.
Zero coupon bond
A bond that pays no interest throughout its life. Zero Coupon Bonds (Zeros) sell at a discount to maturity value. The discount represents the return on the original investment, if the bond is held to its maturity date. The bonds are usually created using interest payment dates of a regular issue.
- What is the Scotia iTRADE Bonds centre?
- What types of fixed income securities are available through the Scotia iTRADE Canada Bonds centre?
- How do I obtain fixed income analysis, either related to specific fixed income securities or the bond market in general?
- What types of fixed income orders can I place through the Scotia iTRADE Bonds centre?
- Is there a minimum order?
- How quickly will my order execute and where will I receive my confirmation message?
- What is the settlement date for fixed income securities?
- Where will the information on my fixed income holdings be maintained and how often will it be updated?
- Are my fixed income holdings marginable?
- What should I know before using the Scotia iTRADE Bonds centre?
- Where do I go for more help?
1. What is the Scotia iTRADE Bonds centre?
The Scotia iTRADE Bonds centre allows you to:
- View an inventory of Canadian Government, Provincial, Corporate, Municipal, Strip Bonds and Money Market instruments
- Find price, yield, credit ratings and maturity dates on fixed income securities offered
- Buy or sell bonds
- Read commentary on what's going on in the bond market
- Learn bond trading strategies and portfolio structuring
2. What types of fixed income securities are available through the Scotia iTRADE Canada Bonds centre?
The Scotia iTRADE Bonds centre offers a wide range of fixed income securities including:
- Government of Canada Bonds
- Provincial, Corporate and Municipal Bonds
- Strips and Treasury Bills
For more information on strip bonds and strip bond packages, please refer to section 2.11. in our Relationship Disclosure Document and Terms and Conditions.
3. How do I obtain fixed income analysis, either related to specific fixed income securities or the bond market in general?
Look to our strategy pages for information on the Canadian and U.S. bond markets offered by recognized bond dealers and analysts, and some of the factors affecting the markets in general.
4. What types of fixed income orders can I place through the Scotia iTRADE Bonds centre?
You can place buy or sell orders at market prices. Market orders cannot be changed or cancelled.
5. Is there a minimum order?
Bond orders must be for at least $5000 face value or 5 whole bonds; each bond has a face value of $1000. Orders must be placed in increments of $1000. Minimum orders for Canadian Government T-Bills are $10,000 face value.
Minimum size and increments for strip bonds varies by issue.
6. How quickly will my order execute and where will I receive my confirmation message?
"Live" market orders should execute within minutes, subject to inventory availability. You will find the status of your order on the View Orders screen.
A confirmation email will be sent to you, confirming completion of your trade(s), if you have selected this feature in the account services area. You will also receive a confirmation contract in the mail. If you have enrolled in Scotia eDocuments, you may view your confirmation online by going to the "Accounts" tab and selecting the "Documents" subtab.
7. What is the settlement date for fixed income securities?
Canadian T-Bills and Commercial Paper: T+1Government of Canada Bonds with an unexpired term of 3 years or less to maturity: T+2
All other Bonds, including Strip Bonds: T+3
8. Where will the information on my fixed income holdings be maintained and how often will it be updated?
You will find your fixed income holdings within your Account Positions in the Account Services section of the Scotia iTRADE Web site. Positions are updated Monday through Saturday.#
9. Are my fixed income holdings marginable?
Please review the chart below for margin rates on fixed income securities. Please note that these margin rates may be changed at any time without prior notice.
Margin Guidelines - Fixed Income
Note: Margin requirements as a percentage of market value, not face value.
|Type of Debt||< 1 YR||1-3 YRS||>3-7 YRS||> 7-11 YRS||>11-20 YRS||>20 YRS|
|Corporate & GIC's||4.5||9||10.5||15||15||15|
|NHA Mortgage Backed||2||2||3.75||7.5||7.5||7.5|
|CDA & Prov Strip & Res||4.5||9||10.5||15||15||15|
|Corp & Muni Strip & Res||15||20||20||30||30||45|
Margin Guidelines - Convertible Bond
|Market Value||Maturity Date||Margin Requirement|
|All Maturities||100% of Market Value|
|$50 - $100||Within 1 year||4.5% of Market Value + 10% Par|
|$50 - $100||> 1 to 3 Years||9.0% of Market Value + 10% Par|
|$50 - $100||> 3 to 7 Years||10.5% of Market Value + 10% Par|
|$50 - $100||> 7 Years||15.0% of Market Value + 10% Par|
|> $100||Within 1 Year||5% of Par + The Greater of:
1. 10% of Par Value
2. 50% of Overpar Value
|> $100||> 3 to 7 Years||11% of Par + The Greater of:
1. 10% of Par Value
2. 50% of Overpar Value
|> $100||> 7 Years||15% of Par + The Greater of:
1. 10% of Par Value
2. 50% of Overpar Value
10. What should I know before using the Scotia iTRADE Bonds centre?
Your use of the Scotia iTRADE Bonds centre, including the information provided is subject to the terms and conditions of the Scotia Capital Inc. Client Agreement(s). Market commentary, listings of issue(s), quotes of prices, yields, coupon rates, ratings, and other research tools accessible in this area have been prepared by independent data and information providers who are not affiliated with Scotia iTRADE. This information is not edited, verified nor approved for currency, completeness, or accuracy. This information should not be considered an offer or a solicitation to buy, sell, or hold specific securities, and any investment decisions you make will be based solely on your evaluation of your financial circumstances and objectives. Scotia iTRADE does not offer or provide any investment, tax, or legal advice regarding the nature, potential, value, suitability, or profitability of any particular security, portfolio of securities, transaction, investment strategy, or other matter.
11. Where do I go for more help?
You can find more information in Help Centre related to the use and functionality of the Scotia iTRADE Bonds centre. For any other questions you may have, email us at email@example.com or call us at 1-888-872-3388.
DBRS Rating Scale: Bond and Long-Term Debt
The DBRS® long-term debt rating scale is meant to give an indication of the risk that a borrower will not fulfill its full obligations in a timely manner, with respect to both interest and principal commitments. Every DBRS rating is based on quantitative and qualitative considerations relevant to the borrowing entity. Each rating category is denoted by the subcategories "high" and "low". The absence of either a "high" or "low" designation indicates the rating is in the "middle" of the category. The AAA and D categories do not utilize "high", "middle", and "low" as differential grades.
Long-term debt rated AAA is of the highest credit quality, with exceptionally strong protection for the timely repayment of principal and interest. Earnings are considered stable, the structure of the industry in which the entity operates is strong, and the outlook for future profitability is favourable. There are few qualifying factors present that would detract from the performance of the entity. The strength of liquidity and coverage ratios is unquestioned and the entity has established a credible track record of superior performance. Given the extremely high standard that DBRS has set for this category, few entities are able to achieve a AAA rating.
Long-term debt rated AA is of superior credit quality, and protection of interest and principal is considered high. In many cases they differ from long-term debt rated AAA only to a small degree. Given the extremely restrictive definition DBRS has for the AAA category, entities rated AA are also considered to be strong credits, typically exemplifying above-average strength in key areas of consideration and unlikely to be significantly affected by reasonably foreseeable events.
Long-term debt rated "A" is of satisfactory credit quality. Protection of interest and principal is still substantial, but the degree of strength is less than that of AA rated entities. While "A" is a respectable rating, entities in this category are considered to be more susceptible to adverse economic conditions and have greater cyclical tendencies than higher-rated securities.
Long-term debt rated BBB is of adequate credit quality. Protection of interest and principal is considered acceptable, but the entity is fairly susceptible to adverse changes in financial and economic conditions, or there may be other adverse conditions present which reduce the strength of the entity and its rated securities.
Long-term debt rated BB is defined to be speculative and non-investment grade, where the degree of protection afforded interest and principal is uncertain, particularly during periods of economic recession. Entities in the BB range typically have limited access to capital markets and additional liquidity support. In many cases, deficiencies in critical mass, diversification, and competitive strength are additional negative considerations.
Long-term debt rated B is considered highly speculative and there is a reasonably high level of uncertainty as to the ability of the entity to pay interest and principal on a continuing basis in the future, especially in periods of economic recession or industry adversity.
CCC CC C
Long-term debt rated in any of these categories is very highly speculative and is in danger of default of interest and principal. The degree of adverse elements present is more severe than long-term debt rated B. Long-term debt rated below B often have features which, if not remedied, may lead to default. In practice, there is little difference between these three categories, with CC and C normally used for lower ranking debt of companies for which the senior debt is rated in the CCC to B range.
A security rated D implies the issuer has either not met a scheduled payment of interest or principal or that the issuer has made it clear that it will miss such a payment in the near future. In some cases, DBRS may not assign a D rating under a bankruptcy announcement scenario, as allowances for grace periods may exist in the underlying legal documentation. Once assigned, the D rating will continue as long as the missed payment continues to be in arrears, and until such time as the rating is suspended, discontinued, or reinstated by DBRS.
Rating Scale: Commercial Paper and Short-Term Debt
The DBRS® short-term debt rating scale is meant to give an indication of the risk that a borrower will not fulfill its near-term debt obligations in a timely manner. Every DBRS rating is based on quantitative and qualitative considerations relevant to the borrowing entity.
Short-term debt rated R-1 (high) is of the highest credit quality, and indicates an entity possessing unquestioned ability to repay current liabilities as they fall due. Entities rated in this category normally maintain strong liquidity positions, conservative debt levels, and profitability that is both stable and above average. Companies achieving an R-1 (high) rating are normally leaders in structurally sound industry segments with proven track records, sustainable positive future results, and no substantial qualifying negative factors. Given the extremely tough definition DBRS has established for an R-1 (high), few entities are strong enough to achieve this rating.
Short-term debt rated R-1 (middle) is of superior credit quality and, in most cases, ratings in this category differ from R-1 (high) credits by only a small degree. Given the extremely tough definition DBRS has established for the R-1 (high) category, entities rated R-1 (middle) are also considered strong credits, and typically exemplify above average strength in key areas of consideration for the timely repayment of short-term liabilities.
Short-term debt rated R-1 (low) is of satisfactory credit quality. The overall strength and outlook for key liquidity, debt, and profitability ratios is not normally as favourable as with higher rating categories, but these considerations are still respectable. Any qualifying negative factors that exist are considered manageable, and the entity is normally of sufficient size to have some influence in its industry.
Short-term debt rated R-2 (high) is considered to be at the upper end of adequate credit quality. The ability to repay obligations as they mature remains acceptable, although the overall strength and outlook for key liquidity, debt and profitability ratios is not as strong as credits rated in the R-1 (low) category. Relative to the latter category, other shortcomings often include areas such as stability, financial flexibility, and the relative size and market position of the entity within its industry.
Short-term debt rated R-2 (middle) is considered to be of adequate credit quality. Relative to the R-2 (high) category, entities rated R-2 (middle) typically have some combination of higher volatility, weaker debt or liquidity positions, lower future cash flow capabilities, or are negatively impacted by a weaker industry. Ratings in this category would be more vulnerable to adverse changes in financial and economic conditions.
Short-term debt rated R-2 (low) is considered to be at the lower end of adequate credit quality, typically having some combination of challenges that are not acceptable for an R-2 (middle) credit. However, R-2 (low) ratings still display a level of credit strength that allows for a higher rating than the R-3 category, with this distinction often reflecting the issuer's liquidity profile.
Short-term debt rated R-3 is considered to be at the lowest end of adequate credit quality, one step up from being speculative. While not yet defined as speculative, the R-3 category signifies that although repayment is still expected, the certainty of repayment could be impacted by a variety of possible adverse developments, many of which would be outside of the issuer's control. Entities in this area often have limited access to capital markets and may also have limitations in securing alternative sources of liquidity, particularly during periods of weak economic conditions.
Short-term debt rated R-4 is speculative. R-4 credits tend to have weak liquidity and debt ratios, and the future trend of these ratios is also unclear. Due to its speculative nature, companies with R-4 ratings would normally have very limited access to alternative sources of liquidity. Earnings and cash flow would typically be very unstable, and the level of overall profitability of the entity is also likely to be low. The industry environment may be weak, and strong negative qualifying factors are also likely to be present.
Short-term debt rated R-5 is highly speculative. There is a reasonably high level of uncertainty as to the ability of the entity to repay the obligations on a continuing basis in the future, especially in periods of economic recession or industry adversity. In some cases, short-term debt rated R-5 may have challenges that if not corrected, could lead to default.
A security rated D implies the issuer has either not met a scheduled payment or the issuer has made it clear that it will be missing such a payment in the near future. In some cases, DBRS may not assign a D rating under a bankruptcy announcement scenario, as allowances for grace periods may exist in the underlying legal documentation. Once assigned, the D rating will continue as long as the missed payment continues to be in arrears, and until such time as the rating is suspended, discontinued, or reinstated by DBRS.
† R-1, R-2, R-3, R-4, R-5 and D are certification marks of DBRS Limited.