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Fixed Income
FEDERAL CROWN CORPORATION BONDS
Federal Crown Corporations are special purpose corporations created by an act of the Canadian Parliament. Several of these corporations have been prominent borrowers in the international markets for many years. Their presence in the Canadian domestic bond market has grown significantly in the past decade. Investors should be aware of these issuers and the benefits they offer.
The Federal Crown Corporations that are active in the Canadian domestic bond market and have recent primary offerings are:
- Export Development Corporation (EDC) - Devoted to providing trade finance services in support of Canadian exporters and investors. Founded in 1944, EDC operates as a commercial financial institution.
- Canada Mortgage and Housing Corporation (CMHC) - Has a mandate to promote the construction of new houses, the repair and modernization of existing houses and the improvement of housing and living conditions.
- Farm Credit Corporation (FCC) - Reports to Parliament through the Minister of Agriculture and Agri-Food. Established in 1959, FCC is Canada's largest agricultural term lender. FCC offers a variety of fixed income securities through its Retail Medium Term Note Program. Click here for more information on Farm Credit Notes.
- Business Development Bank of Canada - A financial institution wholly-owned by the Government of Canada with a mandate to support Canadian entrepreneurship through the provision of financial and management services to small business.
Credit Quality
These corporations are either direct obligations of the Government of Canada or fully guaranteed by the Government of Canada. Either way, they carry the same credit quality as Government of Canada bonds and strips.
COMMON CHARACTERISTICS
Dollars to Invest/Time Horizon
Minimum investment (at face value) is $5000. Typically, terms vary from 2 to 10 years. Shorter maturities are also available in the secondary market.
Risk/Return
Fully guaranteed or a direct obligation of the Government of Canada.
Competitive returns.
Liquidity
Highly liquid; may be sold prior to maturity at market value.
Income
Unless otherwise stated, interest payments are made semi-annually and the principal is repaid at maturity. Individual issuers may offer monthly pay bonds and zero coupon bonds.
KEY BENEFITS
- Over the past several years each of these borrowers has been active in the Canadian domestic bond market with new primary offerings and/or medium term notes.
- Generally higher yields than similar Government of Canada bonds
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