3.3 Government of Canada Securities: T-Bills, Marketable Bonds & RRBs

Canadian Securities Course CSC

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1 Introduction & Exam Overview

About the CSC Exams

2 Chapter 1: The Canadian Investment Marketplace

1.1 The Canadian Securities Industry & the Investment Dealer's Role 1.2 Financial Intermediaries: Banks, Trusts, Credit Unions, Insurers & Pension Funds 1.3 Financial Market Trends 1.4 Investment Capital, Financial Instruments & Financial Markets 1.5 Canadian Exchanges, ATSs, Dark Pools & the Order Protection Rule 1.6 Canadian Securities Regulators, the CSA & CIRO 1.7 Investor Protection: OSFI, CIPF and CDIC 1.8 Ethics, Standards of Conduct & the Client Focused Reforms 1.9 Conflicts of Interest, Complaint Handling & Remediation

3 Chapter 2: The Economy

2.1 Economics Foundations & Measuring Economic Growth 2.2 The Business Cycle & Economic Indicators 2.3 Inflation & Interest Rates 2.4 The Labour Market & Unemployment 2.5 The Bank of Canada & the Inflation-Control Target 2.6 Implementing Monetary Policy: The Operating Band, Market Operations & Transmission 2.7 Fiscal Policy, Deficits & the Challenges of Government Policy 2.8 International Finance & Trade: The Balance of Payments and the Canadian Dollar

4 Chapter 3: Features and Types of Fixed-Income Securities

3.1 The Fixed-Income Marketplace, Bond Terminology & Security 3.2 Protective Covenants, Retirement Provisions & Extendible/Retractable Features 3.3 Government of Canada Securities: T-Bills, Marketable Bonds & RRBs 3.4 Provincial & Municipal Debt and Strip Bonds 3.5 Corporate Bonds, Credit Spreads & Bond Ratings 3.6 Money Market Instruments, Floating-Rate Notes & International Bonds 3.7 Other Fixed-Income Securities & Reading Bond Quotes

5 Chapter 4: Pricing and Trading of Fixed-Income Securities

4.1 Bond Pricing, Price–Yield Relationships & Accrued Interest 4.2 Yield Calculations & Return Measures 4.3 The Term Structure of Interest Rates & Yield Curve Theories 4.4 Fundamental Bond Pricing Properties: Volatility Rules, Duration & Convexity 4.5 Bond Market Trading & Bond Indexes

6 Chapter 5: Common and Preferred Shares

5.1 Common Shares: Ownership Rights, Voting & Restricted Shares 5.2 Dividends, DRIPs, Stock Splits & Consolidations 5.3 Preferred Shares: Features, Cumulative Dividends & Taxation 5.4 Preferred Share Variations: Convertible, Callable, Retractable, Floating & Rate-Reset 5.5 Fundamental Equity Metrics & Ratios 5.6 Stock Indexes & Averages

7 Chapter 6: Equity Transactions

6.1 Order Types, Execution & Market Mechanics 6.2 Margin Trading: Long Accounts & Borrowing 6.3 Short Selling & Short-Margin Requirements 6.4 Trading & Settlement Procedures: T+1, CDS & Confirmations

8 Chapter 7: Derivatives

7.1 Derivatives: Role, Underlying Assets & Users 7.2 Options Fundamentals: Calls, Puts & Moneyness 7.3 Option Strategies & Risk Management 7.4 Forward & Futures Contracts 7.5 Rights & Warrants

9 Chapter 8: Corporations and their Financial Statements

8.1 Corporate Structures & Corporate Governance 8.2 The Annual Report, Accounting Standards & the Auditor's Report 8.3 The Balance Sheet & Income Statement 8.4 The Cash Flow Statement & Earnings Quality 8.5 Public Company Disclosure, Investor Rights, Take-Over Bids & Insider Trading

10 Chapter 9: Financing and Listing Securities

9.1 Government & Corporate Financing: Underwriting and Syndicates 9.2 The Prospectus Process, Stabilization & Purchaser Rights 9.3 The Exempt Market & Private Placements 9.4 The Listing Process: TSX, TSXV & Capital Pool Companies 9.5 Continuous Disclosure, Material Changes & Insider Reporting

11 Chapter 10: Investment Analysis

10.1 Methods of Equity Analysis & Macroeconomic Analysis 10.2 Fundamental Industry Analysis 10.3 Company Analysis: Competitive Advantages, Governance & the Dividend Discount Model 10.4 Discounted Cash Flow & Relative Valuation Multiples 10.5 Financial Statement Ratio Analysis 10.6 Assessing Preferred Share Investment Quality 10.7 Technical Analysis: Charts, Trends & Patterns 10.8 Technical Indicators, Volume, Breadth & Sentiment

12 Chapter 11: Portfolio Analysis

11.1 Measuring Investment Return 11.2 Measuring Risk: Types of Risk, Standard Deviation & Downside Measures 11.3 Portfolio Risk & Return: Correlation and Diversification 11.4 Beta, the Capital Asset Pricing Model & the Security Market Line 11.5 Portfolio Manager Styles: Equity & Fixed Income 11.6 The Portfolio Management Process: Objectives, Constraints & the IPS 11.7 Asset Mix, Monitoring, Performance Evaluation & Rebalancing

13 Chapter 12: Alternative Investments, Other Managed, and Structured Products

12.1 Alternative Investments: Structures, Fees & Liquid Alternatives 12.2 Alternative Strategies, Performance Measurement & Due Diligence 12.3 Segregated Funds, Labour-Sponsored Funds & Listed Private Equity 12.4 Income Trusts, REITs & Closed-End Funds 12.5 Structured Products: PPNs & Market-Linked GICs 12.6 Split Shares & Asset-Backed Securities

14 Chapter 13: Mutual Funds

13.1 Managed Products & Mutual Fund Structure 13.2 Pricing Mutual Fund Units: NAVPS & Forward Pricing 13.3 Mutual Fund Fees, Sales Charges & Unit Series 13.4 Mutual Fund Regulation, Fund Facts & Account Opening 13.5 Types of Mutual Funds & Fund Management Styles 13.6 Redemptions, Withdrawal Plans & Measuring Fund Performance

15 Chapter 14: Exchange-Traded Funds (ETFs)

14.1 ETF Origins, Structure, Tax Efficiency & ETF Facts 14.2 ETF Creation, Redemption & Arbitrage 14.3 Types of ETFs & Advanced Strategies 14.4 Comparing ETFs, Mutual Funds & Individual Securities

16 Chapter 15: Working with the Institutional Client

15.1 The Institutional Marketplace & Institutional Clients 15.2 Institutional Investment Guidelines, Styles & Restrictions 15.3 Buy Side & Sell Side: Trading Desks, Revenue, Clearing & Best Execution 15.4 Block Trading, Dark Pools & Algorithmic Trading

17 Chapter 16: Fee-Based Accounts and Working with the Retail Client

16.1 Fee-Based Accounts: Managed & Non-Managed Models 16.2 Fee Transparency, CRM2 & Total Cost Reporting, and MWRR vs. TWRR 16.3 The Financial Planning Approach & the Life Cycle 16.4 Behavioral Finance, Sequence-of-Returns Risk & Client Coaching 16.5 Estate Planning Basics

18 Chapter 17: Canadian Taxation

17.1 The Canadian Taxation System 17.2 Taxation of Investment Income 17.3 Capital Gains, Losses & The Superficial Loss Rule 17.4 Registered vs Non-Registered Tax-Advantaged Accounts 17.5 Tax Planning Strategies, Pension Plans & the RDSP

3.3 Government of Canada Securities: T-Bills, Marketable Bonds & RRBs

Key Takeaways Explain This Topic AI

Treasury bills are sold at a discount at regular auctions and mature at par; the discount is taxed as interest income.

A T-bill's yield = (100 − price) ÷ price × 365 ÷ days to maturity.

Government of Canada benchmark bonds form the risk-free yield curve against which other bonds are priced as a spread.

Real Return Bonds adjust principal to the CPI and pay a fixed real coupon on the adjusted principal; Canadian RRBs have no deflation floor.

The federal government stopped issuing new Real Return Bonds in November 2022.

Last updated: October 2026

Government of Canada Treasury Bills (T-Bills)

Government of Canada Treasury bills (T-bills) are short-term debt obligations issued by the federal government through the Bank of Canada to fund ongoing operational requirements and manage cash flows. Because they are backed by the full taxing power and sovereign credit of the federal government, T-bills are considered the safest, lowest-risk fixed-income instruments in Canada.

Key Structural Characteristics

Zero-Coupon / Sold at a Discount: T-bills do not pay periodic coupon interest. Instead, they are issued at a discount to their face value and mature at par ($100.00 base unit or in denominations from $1,000 to $1,000,000).

Standard Terms: Regular federal T-bill auctions offer maturities of 3 months (approx. 91 days) , 6 months (approx. 182 days) , and 1 year (approx. 364 days) .

Liquidity: T-bills boast the most active and liquid secondary money market in Canada.

The Bank of Canada Auction Process

T-bills are distributed through regular competitive auctions, generally held every two weeks, which the Bank of Canada runs as fiscal agent for the Minister of Finance. The government also issues short cash management bills when needed; a temporary one-month bill was discontinued after its last auction on July 29, 2025.

Primary Distributors: Auctions are open exclusively to Government Securities Distributors (GSDs) , with a top tier designated as Primary Distributors (PDs) (consisting of the major Canadian Schedule I chartered banks and major investment dealers). Primary distributors must actively participate in auctions and maintain liquid secondary trading.

Competitive Bids: Large institutional bidders state the exact dollar amount of T-bills they wish to buy and the specific yield (or price) they are willing to accept.

Non-Competitive Bids: Retail and smaller institutional participants submit bids specifying quantity only, agreeing to accept the average winning yield determined by the competitive auction. Non-competitive bids are filled first in full.

T-Bill Discount Yield Formula

In the Canadian money market, T-bill yields are quoted on an annualized discount yield basis using an actual/365-day year convention (unlike the U.S. money market, which uses a 360-day year):

Yield = 100 − P P × 365 t × 100 \text{Yield} = \frac{100 - P}{P} \times \frac{365}{t} \times 100 Yield = P 100 − P × t 365 × 100

Where:

P P P = Purchase price per $100 face value
t t t = Number of days to maturity
100 100 100 = Redemption price at maturity
Worked Example: T-Bill Yield Calculation

An investor purchases a 182-day Government of Canada T-bill at a price of 97.60 per $100 face value. What is the annualized yield?

Yield = 100 − 97.60 97.60 × 365 182 × 100 \text{Yield} = \frac{100 - 97.60}{97.60} \times \frac{365}{182} \times 100 Yield = 97.60 100 − 97.60 × 182 365 × 100 Yield = 2.40 97.60 × 2.005495 × 100 \text{Yield} = \frac{2.40}{97.60} \times 2.005495 \times 100 Yield = 97.60 2.40 × 2.005495 × 100 Yield = 0.024590 × 2.005495 × 100 ≈ 4.93 % \text{Yield} = 0.024590 \times 2.005495 \times 100 \approx 4.93\% Yield = 0.024590 × 2.005495 × 100 ≈ 4.93%

The annualized investment yield for this 182-day T-bill is 4.93% .

Tax Treatment of T-Bills

Under the Canadian Income Tax Act , the difference between the purchase price and the redemption price received at maturity is legally classified as interest income, NOT as a capital gain . The return is 100% taxable at the investor's marginal tax rate. If an investor sells a T-bill prior to maturity in the secondary market, any price gain or loss reflecting prevailing interest rate shifts is allocated between accrued interest and capital gain/loss under CRA rules.

Government of Canada Marketable Bonds

Government of Canada marketable bonds are long-term, non-callable debt securities that pay a fixed coupon semi-annually and return the principal upon maturity. They are direct, unconditional obligations of the sovereign state.

Benchmark Bonds and the Yield Curve

The federal government designates specific liquid issues as benchmark bonds across key maturities:

2-year benchmark
5-year benchmark
10-year benchmark
30-year (long-term) benchmark

These benchmark bonds form the Canadian risk-free yield curve . Because sovereign debt carries zero default risk in domestic currency, every provincial, municipal, and corporate bond in Canada is priced and quoted relative to these benchmarks as a credit spread measured in basis points (e.g., "Province of Ontario 10-year bonds trading at +65 bps over the 10-year GoC benchmark").

Real Return Bonds (RRBs)

Real Return Bonds (RRBs) are innovative debt securities issued by the federal government designed specifically to eliminate inflation purchasing power risk . Mechanics of Real Return Bonds (RRBs)

├── 1. Base Principal (e.g., \$1,000) indexed semi-annually to CPI
├── 2. Real Coupon Rate (fixed) paid on Adjusted Principal
└── 3. Final Maturity Repayment: Inflation-adjusted principal (falls if CPI falls)
How Real Return Bonds Work

Fixed Real Coupon: The bond is issued with a fixed "real" coupon rate (e.g., 2.50%).

Principal Indexation: Every six months, the bond's nominal principal value is adjusted upward (or downward) based on the Canadian All-Items Consumer Price Index (CPI) .

Semi-Annual Cash Coupon: The semi-annual interest payment is calculated by multiplying the inflation-adjusted principal by one-half of the real coupon rate: Coupon Payment = Adjusted Principal × Real Coupon Rate 2 \text{Coupon Payment} = \frac{\text{Adjusted Principal} \times \text{Real Coupon Rate}}{2} Coupon Payment = 2 Adjusted Principal × Real Coupon Rate

Maturity Repayment: At maturity, the investor receives the inflation-adjusted principal. Canadian RRBs have no deflation floor : if the CPI falls, the adjusted principal and the coupons fall too, and in prolonged deflation the principal could end below its original value.

Important

In its Fall Economic Statement on November 3, 2022, the federal government announced that it would stop issuing Real Return Bonds , citing low demand. Existing RRBs remain outstanding and trade in the secondary market until they mature, but no new RRBs are being auctioned.

Worked Example: RRB Cash Flow Calculations

A client purchases $100,000 face value of a 2.50% Government of Canada Real Return Bond at issuance. Over the next year, the CPI increases by 6.00%:

Adjusted Principal Calculation: Adjusted Principal = $ 100 , 000 × ( 1 + 0.06 ) = $ 106 , 000 \text{Adjusted Principal} = \$100,000 \times (1 + 0.06) = \$106,000 Adjusted Principal = $100 , 000 × ( 1 + 0.06 ) = $106 , 000

Semi-Annual Coupon Calculation: Coupon Payment = $ 106 , 000 × 2.50 % 2 = $ 106 , 000 × 0.0125 = $ 1 , 325.00 \text{Coupon Payment} = \frac{\$106,000 \times 2.50\%}{2} = \$106,000 \times 0.0125 = \$1,325.00 Coupon Payment = 2 $106 , 000 × 2.50% = $106 , 000 × 0.0125 = $1 , 325.00 The client receives a semi-annual interest payment of $1,325.00 , which is higher than the base coupon ($1,250.00) because of the inflation compensation.

Taxation of RRBs: The Phantom Income Problem

While RRBs provide robust inflation protection, their taxation in a non-registered account can create liquidity complications:

Tax on Real Coupon: The semi-annual cash interest received is fully taxable as interest income.

Tax on Accrued Principal Adjustment: The Canada Revenue Agency (CRA) taxes the inflation adjustment applied to the principal in the year it accrues , even though the investor receives no cash until the bond matures!

This creates "phantom income" —the investor owes cash taxes on an accrued, non-cash gain. For this reason, RRBs are best held inside tax-sheltered accounts (RRSPs, TFSAs, RRIFs) where accrued inflation is protected from immediate taxation.