# 4.5 years A-rated Bond vs 5 years GIC



## gibor365 (Apr 1, 2011)

Was curious what is better for registered account FI allocation, 4.5 years A-rated Bond (3.15% yield) vs 5 years GIC HOMEQUITY BANK 2.86%?

I_Issuer: LAURENTIAN BANK Coupon: 3.0% At Maturity: Sep 12, 2022 Type: Bond Class: Corporate CUSIP #: 51925DBP0 Credit Rating: A(low) Payment Frequency: Semi-Annual Instrument Currency: CAD Yield: 3.13% Semi-Annual, 3.154% Annual Face Value: $10,000.00 Price (Per 100): $99.4449 Accrued Interest: $120.00 Exchange Rate: 1.0 Estimated Cost: $10,064.49 Settlement Date: Feb 05, 2018_


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## SixesAndSevens (Dec 4, 2009)

for a difference of only 0.29% I will just pick the GIC.


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## lonewolf :) (Sep 13, 2016)

About a week ago saw 5yr GIC offering 3.2% from one of the online Manitoba credit unions which is safer then home equity bank.

Banks have a conflict of interest their goal is to make money they do not care if you get paid if S hits the fan. Member owned credit unions no conflict of interest the members try to run as safe as possible so return of capital plus interest is more likely to be paid out.


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## OptsyEagle (Nov 29, 2009)

4.5 years is a long time. 

Quite annoying to watch that A rating, that you had so much confidence in, get changed to BBB, then BB, then B, then C, and probably about 2 months before your bond matures, you read in the newspapers how the Office of the Superintendent of Financial Institutions decided it was finally time to step in and shut that bank down. Sure you can sell it anytime, but with those downgrades, how much do you really want to lose on it, to sell it.

Ratings are pretty much worthless and since you or I have absolutely no idea what is really going on at these banks, it is really all you have.

The GIC wins hands down in my book.


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## like_to_retire (Oct 9, 2016)

lonewolf :) said:


> Banks have a conflict of interest their goal is to make money they do not care if you get paid if S hits the fan. Member owned credit unions no conflict of interest the members try to run as safe as possible so return of capital plus interest is more likely to be paid out.


The banks GIC's are covered by Canadian Deposit Insurance Corporation (CDIC) while the credit union would be covered by its province's Deposit Insurance, so I don't see the credit union as any safer than the GIC.



gibor365 said:


> Was curious what is better for registered account FI allocation, 4.5 years A-rated Bond (3.15% yield) vs 5 years GIC HOMEQUITY BANK 2.86%?


The bond has a bit more risk to deal with than the GIC, but it pays a bit more, and it's liquid, so I would say it's a wash. I'd go with the bond if you required the liquidity.

ltr


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## agent99 (Sep 11, 2013)

I have been looking at same sort of thing and not finding anything I like! I see no problem with the Laurentian Bank bond. There may be some even shorter bonds with similar yields. 2.86% locked in for 5 years isn't something that attracts me. This week, I bought 20,000 of Morguard 18Nov20, 4.013% for 102.6. Forget the actual yield, but over 3% and less than 3 years to maturity. 

Some BMOIL bonds are listed as HY (High Yield) and we have to call in to buy them. Funnily enough, Laurentian bonds are HY, but not Morguard. At this time of year BMOIL phone wait times are so long (and we are out of country) that I have had to avoid HY bonds (may be a good thing!)


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## gibor365 (Apr 1, 2011)

> This week, I bought 20,000 of Morguard 18Nov20, 4.013% for 102.6. Forget the actual yield, but over 3% and less than 3 years to maturity.


Thia is actually what i'm looking for, < 3 years to maturity, > 3% yield and reasonable grade



> I'd go with the bond if you required the liquidity.


 I don't need liquidity . 
What do you think should be spread between same duration GIC and bond (BBB or higher), to give preference to the bond?


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## RBull (Jan 20, 2013)

I picked up transalta strip about a week ago at 93.5825 annual yield 3.76% approx 22 mths to maturity, which suits me fine now. 

They have a different issue available now- about 34 mths to maturity.

RES TRANSALTA 25NOV20 Nov 25, 2020 3.578 90.5514 BBBL/BBB- 400,000 

Security Type:
Strip Bonds
PAR Value:
20,000
Approx. Annual yield:
3.610%
Issuer:
TAC
Special Term:
N/A


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## like_to_retire (Oct 9, 2016)

gibor365 said:


> I don't need liquidity .
> What do you think should be spread between same duration GIC and bond (BBB or higher), to give preference to the bond?


That would depend on how much you value risk, and it would certainly depend on whether it was BBB/BBB+/A-/A/A+/etc, etc. If you don't care about liquidity, you've removed one in the plus column for the bond, so the GIC starts to look better. Even a bank bond has a measure of risk, that's why they're not AAA, which would equate to CDIC GIC protection. 

The two examples you gave pay about $29 a year difference on $10,000 face. Is it worth it to you? Only you can say.

ltr


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## fireseeker (Jul 24, 2017)

agent99 said:


> I have been looking at same sort of thing and not finding anything I like! I see no problem with the Laurentian Bank bond. There may be some even shorter bonds with similar yields. 2.86% locked in for 5 years isn't something that attracts me. This week, I bought 20,000 of Morguard 18Nov20, 4.013% for 102.6. Forget the actual yield, but over 3% and less than 3 years to maturity.
> 
> Some BMOIL bonds are listed as HY (High Yield) and we have to call in to buy them. Funnily enough, Laurentian bonds are HY, but not Morguard. At this time of year BMOIL phone wait times are so long (and we are out of country) that I have had to avoid HY bonds (may be a good thing!)


Please pardon the (mildly) off-topic query: Agent99 do you see the HY bonds in BMOIL's inventory online? Or do you have to phone to ask about that inventory?
I use BMOIL but am generally disappointed with the limited bond options displayed online.


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## CPA Candidate (Dec 15, 2013)

I'd probably go with the bond for liquidity. In my estimation, the entire point of FI in the portfolio is the ability to reallocate between FI and equity as the market changes (usually as equity drops). I see them merely as life preservers of value when equity markets drop; but they have to be liquid so you can reallocate when that happens, therefore liquidity is a significant issue.

GICs on the other hand are rather useless in a equity market decline provided you do not have impeccable timing.


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## like_to_retire (Oct 9, 2016)

CPA Candidate said:


> I'd probably go with the bond for liquidity. In my estimation, the entire point of FI in the portfolio is the ability to reallocate between FI and equity as the market changes (usually as equity drops). I see them merely as life preservers of value when equity markets drop; but they have to be liquid so you can reallocate when that happens, therefore liquidity is a significant issue.
> 
> GICs on the other hand are rather useless in a equity market decline provided you do not have impeccable timing.


Yeah, I agree with a lot of what you're saying, but I don't know if I would label GIC's as useless in a decline. I tend to keep a certain percentage in an HISA that serves as quick cash for purchases that present themselves, and then every six months a GIC comes due in my ladder that I can use if I need to rebalance. I've never needed better timing than that.

ltr


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## agent99 (Sep 11, 2013)

Well into retirement, but over the years, I have only ever sold one bond before maturation. And only because I could use the proceeds to buy a higher yielding bond. I do see Bonds and GICs at life preservers to provide some degree of safety if markets tank. As we age, we should be adding to that safety net. Hard to see a situation when I would have _purposely_ sold FI to buy Equity. Not to say it hasn't happened. Hard to buy FI with such low yields when you can buy a blue chip yielding 5%!


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