Canadian treasury bonds: Invest in the Great White North

Canadian treasury bonds and exchange-traded funds can be a good investment. Ask your broker. (Photo Credit: CC BY/scazon/Fotopedia)

Some investors look to Canada, the United States’ neighbor to the north, for their treasury bonds. Unlike the U.S. system, where which treasury bonds can be purchased through companies like TreasuryDirect, the Canadian process is slightly different. Individual bonds can be purchased from three different categories: Government of Canada marketable bonds, Government of Canada real return bonds and Government of Canada treasury bills (T-bills). An experienced broker can steer you in the right direction, or even clue you in to exchange-traded funds (ETFs), writes Bankrate.

Investing in Canadian bonds: What you should know

Whether you’re investing in financial products from Canada or any other country than your own, you need to know more than simply how to invest your money. It is very important to remain abreast of currency exchange rates and practices by country, as well as how earnings on such investments are taxed. If brokerage houses have had success securing the prevailing foreign exchange rate, they’ll expend more energy directing their clientele in toward bond transactions. In they haven’t, the investor will be largely on their own.

Get excited about ETFs, maybe mutual funds

Exchange-traded funds are a viable option to discuss with your broker. Bankrate suggests perusing one or two sources for the research you’ll need to make an informed decision: the iShares DEX All Government Bond Index Fund and the Bank of Montreal’s Mid Federal Bond Index. While taking a swim in the pool of invested money in Canadian mutual funds may sound lucrative, there are three big things to consider:

1. Many Canadian banks won’t open an account for a foreign national. You could change your citizenship and get a Canadian postal address if you’re serious about this, but understand that that would be an enormous undertaking.
2. If you do manage to invest in a Canadian mutual fund as a non-resident, a flat 10 to 25 percent tax will apply to any income distributions.
3. Expect to encounter heavy reporting and taxation requirements on the U.S. side, as well.

If you simply want to trade currency, Canadian mutual funds may not be the best idea. Consult with your broker, as the credit quality, safety or yield may or may not be enough to make it worth your while.

Canadian T-bills: Your best bet

For most people, Government of Canada Treasury Bills offer the best rates for a fully guaranteed federal product. Available in terms from one month to a year, there’s little or no risk if the T-bill is held to maturity. They are also highly liquid, in that they can be sold at any time, with penalty. Minimum investment is $5,000 for three months to a year, or $25,000 for one or two months.

Sources

Bank of Canada: Interest rates

Bankrate

HSBC Canada

TD Canada Trust

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