In finance, a bond is a negotiable certificate that acknowledges the indebtedness of the bond issuer to the holder. It is negotiable because the ownership of the certificate can be transferred in the secondary market. It is a debt security, in which the authorized issuer owes the holders a debt and, depending on the terms of the bond, is obliged to pay interest (the coupon) to use and/or to repay the principal at a later date, termed maturity. A bond is a formal contract to repay borrowed money with interest at fixed intervals (semi annual, annual, sometimes monthly).
The following descriptions are not mutually exclusive, and more than one of them may apply to a particular bond.
Creditor or borrower categories
There are four main credit or borrower categories:
- Federal bonds issued by the Government of Canada (including Crown Corporations),
- Provincial bonds (including provincially guaranteed securities),
- Municipal bonds,
- Corporate bonds.
As of September 30, 2015, the Federal (Canada and Crown Corporation) sector accounted for approximately 35.96% of the Universe Bond Index. The Provincial sector was 33.24%, the Municipal sector was 1.84%, and the Corporate Sector was 28.95%.
Canada call feature
A Canada call issue is simply a bond which may be called back by the issuer to redeem the debt prior to the maturity date at an equivalent yield of a Government of Canada bond of the same maturity plus a premium (example, Canada call + 15bps). The holder of the bond is paid the calculated price (based on the yield plus the additional 15bps) or par whichever is higher. Typically there are not many doomsday calls redeemed before maturity as it is not advantageous for the issuer to do so. This feature is more commonly attached to corporate issues.
FTSE TMX Global Debt Capital Markets (formerly PC-Bond / DEX) is the predominant provider of fixed income indices in Canada. It is best known for the Universe Bond Index.
Over 600 Indices and Sub Indices are offered. In addition to the Universe Bond Index, the most common indices are:
- Short Term Bond Index, one to five years.
- Mid Term Bond Index, five to ten years.
- Long Term Bond Index, 10+ years.
- Bond - Wikipedia, viewed June 19, 2012
- FTSE TMX Canada Universe and Maple Bond Indexes v1.2 - December 2015, viewed December 28, 2015.
- Blackrock, iShares Canadian Universal Bond Index ETF, viewed December 28, 2015.
- TD CanadaTrust, Fixed Income Glossary, viewed August 1, 2012.
- FTSE TMX Canada Indices, viewed December 17, 2014.
- Canada Universe Bond Index, viewed December 17, 2014.