Here are the main debt securities:

• Treasury bills
• Guaranteed investment certificates (GICs)
• Savings bonds
• Bonds and debentures
• Principal-protected notes

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Treasury bills

Government-guaranteed short-term investments

With Treasury bills (T-bills), investors loan their money to the federal or a provincial government. T-bills are issued for a term of one year or less.

At maturity, the government pays out a higher amount than the amount invested. For example, an investor who invests $9,800 in a T-bill will receive $10,000 a year later. The value at maturity is determined when the T-bill is issued.

How to buy or sell Treasury bills

T-bills can be purchased through a financial institution, online broker or investment dealer representative.

If you hold onto them until maturity, the government will automatically redeem them at their face value (e.g., $10,000). You can also sell them back to your financial institution or broker before maturity.

Expected return

The return is determined by the difference between the T-bill’s value at maturity and its purchase price.

Before maturity, the market value of T-bills generally depends on interest rates. If rates rise, T-bills decline in value, and vice versa.

Liquidity

Treasury bills can usually be sold quickly before maturity.

Risk

Very low. The risk of payment default is very low, because T-bills are guaranteed by the governments that issue them. Since T-bills are short-term securities, there is limited risk that changes in interest rates will have a significant impact on their market value.

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Savings bonds

Government-guaranteed investments

With savings bonds, investors loan money to the federal or a provincial government. Savings bonds have terms of one year or more.

The investor then earns either regular interest (received at regular intervals) or compound interest (the investor doesn’t touch it until the end of the term).

At maturity, the issuing government pays out the face value, i.e., the value set at the time the savings bond was issued.

How to buy or sell savings bonds

Savings bonds are generally available through payroll savings plans offered by employers. You can redeem them with the issuing government subject to certain conditions (see the Liquidity section).

Expected return

Interest on savings bonds can be calculated in different ways, including:

• Fixed rate to maturity
• Step-up rates (interest rates that increase at set intervals on a pre-determined basis)
• Minimum rate that can be adjusted upward by the issuer if market conditions demand

Liquidity

Savings bonds, once purchased, usually can’t be resold or transferred to someone else. However, they can be sold to the issuing government. Depending on the savings bond, this can be done:

• At any time
• Only at specific intervals
• Only at maturity

Risk

Very low. Savings bonds are guaranteed by the government.

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Bonds and debentures

Investments guaranteed by a government or company

With a bond, the investor loans money to the issuing government or company. As a general rule, they receive periodic interest payments calculated at a fixed rate (coupon rate). Sometimes, the investor receives interest payments that may be adjusted upwards if market conditions demand.

The term to maturity is typically 1 to 30 years.

At maturity, the investor receives a pre-set amount (the face value).

With bonds called strip or “zero coupon” bonds, the interest portion (the “coupon”) is separated from the principal and sold as a separate investment.

Bonds may be traded at prices above or below face value.

How to buy or sell bonds and debentures

They can be purchased through an online broker or investment dealer representative.

They can be sold at market value before maturity (see the Expected return section) through an online broker or representative.

If you wait until maturity, you’ll receive the initial capital (principal) plus any remaining interest.

Expected return

The return comes from two sources:

• Interest paid
• The difference between the selling price (or face value received at maturity) and the purchase price of the bond

The market value of a bond moves up and down with:

• Changes in the issuer's credit rating (the higher the risk that the issuer will fail to pay, the lower the value of the bond).
• Changes in interest rates. For example, when interest rates fall, the interest under the bond becomes more attractive to investors and the market value of the bond increases accordingly.

The return you get depends on the price you pay. For example, a debenture with an interest rate of 6% will earn $60 per year on each multiple of $1,000 of its face value (its issue price). If you purchase the debenture for $950, your return will be higher than 6%.

Some bonds allow the company that issued them to buy them back.

Liquidity

Bonds are sold on over-the-counter marketsAn over-the-counter market is a market where securities (such as bonds, money market securities, shares) that are not registered on an exchange are traded. It is an interdealer market.. If the issuer experiences financial hardship, the investor may not be able to resell the bond or debenture.

With a convertible bond, the investor can exchange their bond for shares in the issuing company.

Risk

Low to high. Bonds decline in value if interest rates rise or the issuer experiences financial hardship.

The inflation rate could potentially be higher than the return you earn on a bond. If, for example, you hold a bond paying 2% interest and inflation reaches 3%, your return will be negative (-1%) when adjusted for inflation. For more information, see the page Inflation and its impacts on your finances.

Corporate bonds are usually secured by specific assets. Debentures are similar to bonds except they are not secured by specific assets.

If the issuer is dissolved, the bond and debenture holders are entitled to a portion of the remaining assets of the issuer ahead of shareholders.

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Principal-protected notes