Why do most corporation bonds pay a higher rate of interest than Canada Savings Bonds???

Answer 1

Not sure about if the Canadian bonds are insured or not but I am going to go out on a limb and say they are the least risky bond investment. A corporation has the risk of going under and not paying you back SO would you rather buy a canadian government bond that pays 5% or a corporation bond that pays 5%?

Answer 2

There are four reasons why Corporate Bonds pay a higher rate than Canada Savings Bonds.

1. Default Risk. The government guarantees that savings bonds will be paid -- but if a company goes bankrupt, bondholders may not get paid.

2. Liquidity. Someone selling a corporate bond may not be able to find a buyer easily -- while savings bonds can be turned into cash at any time.

3. Taxes. I'm not sure about Canada -- but in the US, you don't have to pay state or local taxes on government securities -- but you do on corporate securities.

4. Interest rate risk. Savings bonds are usually short term -- so do not lose much value if interest rates rise. Corporate bonds are usually longer term -- and lose a lot more value if rates go up. Investors demand to be compensated for this price risk.

Answer 3

Safety: The government of Canada is usually considered a better risk than most corporations.

Tradition: The average person tends to think of Canada Savings Bonds rather than corporate bonds when looking for an investment for a small amount of money. In addition, it is easier to buy Canada Savings Bonds. Financial institutions, like banks and trust companies, will set up plans for weekly or monthly payments, and many large employers will set up payroll deduction to help employees buy Canada Savings Bonds. If enough people buy at low interest rates, the government has no reason to raise rates.

Answer 4

It that many corporate bonds in Canada have a perceived high risk, here a online services for Canadian bonds http://bond-yields.com/c/rates/brazil-bond-rates/

Answer 5

corporate junk rated bonds will pay the highest rate but will also carry the highest risk. Nothing is guaranteed.