3.7 Other Fixed-Income Securities & Reading Bond Quotes

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

3.7 Other Fixed-Income Securities & Reading Bond Quotes

Key Takeaways Explain This Topic AI

GICs are bank or trust company deposits that are CDIC-insured within limits, but most are not redeemable before maturity.

NHA mortgage-backed securities pay monthly blended principal and interest from insured mortgages, with timely payment guaranteed by CMHC, and they carry prepayment risk.

Canada Mortgage Bonds pay semi-annual interest and principal at maturity and are guaranteed by CMHC.

A convertible debenture's conversion value = number of shares received × share price; the premium is the excess of its market price over that value.

Bond quotes show bid and ask prices per $100 of face value and the corresponding yield to maturity.

Last updated: October 2026

Beyond plain government and corporate bonds, Canadian investors use several other fixed-income products. Each has distinct features, risks and protections that exam questions test.

Guaranteed Investment Certificates (GICs)

A GIC is a deposit with a bank, trust company or credit union that pays a set rate (or a rate linked to an index) for a fixed term, usually 30 days to 5 years.

Non-redeemable GICs lock the money in until maturity and usually pay more; redeemable (cashable) GICs can be cashed early but pay less.

GICs issued by CDIC members are insured up to $100,000 per insured category, including principal and interest. Provincially regulated credit unions are covered by provincial deposit insurers.

Interest is fully taxable each year, even on compound GICs that pay interest only at maturity.

Canada Savings Bonds: A Discontinued Product

For decades, Canada Savings Bonds and Canada Premium Bonds were sold to retail investors through payroll plans and banks. The federal government stopped selling them in 2017, and the remaining bonds have since matured. You may still see them in older material.

Mortgage-Backed Securities and Canada Mortgage Bonds

NHA mortgage-backed securities (NHA MBS) are created by pooling residential mortgages insured under the National Housing Act . Investors receive a share of the pool's cash flows, and the Canada Mortgage and Housing Corporation (CMHC) guarantees timely payment, giving them Government of Canada credit quality.

• Feature NHA MBS Canada Mortgage Bonds (CMB)
• Issuer Approved lenders, through pools Canada Housing Trust
• Payments Monthly blended principal and interest Semi-annual interest, principal at maturity
• Guarantee Timely payment guaranteed by CMHC Guaranteed by CMHC
• Main risk Prepayment risk: homeowners repay early when rates fall Interest rate risk, like a government bond

Because MBS investors receive principal back early when borrowers refinance at lower rates, they must reinvest at those lower rates. That prepayment risk is why MBS yields exceed those of comparable government bonds.

Convertible Bonds and Debentures

A convertible bond or debenture can be exchanged for a set number of the issuer's common shares. It offers fixed income plus a share in the upside, so it usually carries a lower coupon than a straight bond.

Conversion price: the price per share at which conversion occurs.

Conversion ratio: par value ÷ conversion price = number of shares per bond.

Conversion value (parity): conversion ratio × current share price.

Conversion premium: the amount by which the bond's market price exceeds its conversion value.

Worked Example: Convertible Debenture

A $1,000 debenture is convertible at $25 per share, so it converts into 1 , 000 / 25 = 40 1,000 / 25 = 40 1 , 000/25 = 40 shares. The shares trade at $28.

Conversion value: 40 × 28 = 1,120 40 \times 28 = 1{,}120 40 × 28 = 1 , 120 dollars.

If the debenture trades at $1,150, the conversion premium is ( 1,150 − 1,120 ) / 1,120 = 2.68 % (1{,}150 - 1{,}120) / 1{,}120 = 2.68\% ( 1 , 150 − 1 , 120 ) /1 , 120 = 2.68% .

When the shares rise well above the conversion price, the debenture trades close to its conversion value. When the shares fall, its price is supported by its value as a straight bond. Issuers can often force conversion by calling the debenture when its conversion value is above the call price.

High-Yield and Zero-Coupon Issues

High-yield (speculative-grade) bonds are rated below BBB (low) / BBB−. They pay higher yields because their default risk is higher, and their prices often behave more like stocks in a downturn. Zero-coupon bonds pay no interest and are sold at a deep discount; strip bonds (covered earlier) are the main Canadian example.

How to Read a Bond Quote

Dealers quote bonds as a price per $100 of face value with the corresponding yield to maturity:

• Issuer Coupon Maturity Bid Ask Yield (at ask)
• Province of Ontario 3.65% June 2, 2033 98.75 98.90 about 3.8%

The bid (98.75) is what the dealer will pay you; the ask (98.90) is what you pay the dealer. The gap is the dealer's spread.

A price below 100 means a discount, so the yield is higher than the coupon.

To find the dollar cost, multiply by face value: buying $10,000 face at 98.90 costs $9,890, plus accrued interest.

Corporate bonds are often quoted by their spread over a Government of Canada benchmark, for example "+125" (1.25 percentage points).

Worked Example: Buying and Selling at the Quoted Prices

A client buys $50,000 face value of the Ontario 3.65% bonds at the ask price of 98.90:

Price paid: 50,000 × 98.90 / 100 = 49,450 50{,}000 \times 98.90 / 100 = 49{,}450 50 , 000 × 98.90/100 = 49 , 450 dollars, plus accrued interest.

If the client sold the same bonds back immediately at the bid of 98.75:

Proceeds: 50,000 × 98.75 / 100 = 49,375 50{,}000 \times 98.75 / 100 = 49{,}375 50 , 000 × 98.75/100 = 49 , 375 dollars, plus accrued interest.

The $75 difference is the dealer's spread, the cost of an immediate round trip (0.15 per $100 of face value). Spreads are narrower for large trades in liquid government bonds and wider for small trades in less liquid corporate or municipal issues.

Price and Yield Move in Opposite Directions

Because the coupon is fixed, a bond's price must fall for its yield to rise. If yields on similar Ontario bonds rose to 4.0%, the 3.65% bond's price would fall further below 100; if they fell to 3.5%, it would trade above 100 at a premium. That inverse relationship, and how strongly it affects bonds with different maturities and coupons, is covered in the next chapter.