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What are fixed-income securities?

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Fixed-income security is a debt instrument issued by a government, corporation or other entity to finance and expand its operations. Fixed-income securities provide investors a return in the form of fixed periodic payments and the potential for capital gains. Investors can purchase a bond, treasury bill, Guaranteed Investment Certificate (GIC), mortgage, preferred share, or any other fixed-income product that represents a loan.

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Why invest in fixed-income securities?

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Fixed-income securities help diversify a portfolio. For many investors, particularly retirees, fixed-income investments are a secure, low-risk way to generate a steady income.

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What are some examples of fixed-income securities?

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The following is a list of some common fixed-income securities:

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• Bonds

  A bond is a loan made by an investor to an issuer (e.g. a government or a company). In turn, the issuer promises to repay the principal of the bond on a fixed maturity date and to make regularly scheduled interest payments (usually every six months).​

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• Guaranteed Investment Certificates (GICs)

  A GIC is a note issued by a trust company with a fixed yield and term. The Canada Deposit Insurance Corporation (CDIC) insures many GICs for interest and principal totaling up to $100,000. GICs are generally non-redeemable before the term is complete.

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• Treasury bills

  Treasury bills (T-bills) are the safest type of short-term debt instrument issued by a federal government. Ideal for investors seeking a 1- to 12- month investment period, T-bills are highly liquid and very secure.

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• Banker’s Acceptances

  Banker’s Acceptances (BAs) are short-term promissory notes issued by a corporation, bearing the unconditional guarantee (acceptance) of a major Chartered Bank. BAs offer yields superior to T-bills, and a higher quality and liquidity than most commercial paper issues.

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• NHA Mortgage-Backed Securities (MBS)

  A National Housing Act (NHA) MBS is an investment that combines the features of residential mortgages and Canadian government bonds. MBS investors receive monthly income consisting of a blend of principal and interest payments from a pool of mortgages.

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• Strip coupons and residuals

  Strip coupons and residuals are instruments purchased at a discount that mature at par (100). They grow over time and while any interest income is not payable until maturity, a nominal amount of interest is accrued each year and must be claimed as income by the purchaser for tax purposes.

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• Laddered portfolio

  A laddered portfolio is comprised of several bonds, each of which has a successively longer term to maturity. Each position in the portfolio is usually the same size as the next, with intervals between maturity dates roughly equal. A laddered portfolio helps spread reinvestment risk over the long term, helping to average out the effects of overall interest rate changes.