Posted on: 06-10-10 16:38:39
Every year I get this one time email from HR asking about investing in CSB. when I looked at the rates on the websites, I did not find it interesting. Am I missing something here? Did anyone invest in CSB? What is the rationale other than secure return at the rate of 1.5% (max)?
Any insights appreciated.
Thank you for the reply. How these are different than lets say Certificates or even regular savings account. The part that confuses me most is about the value of Bond. I can understand the value of Gold can increase or decrease but if I have bonds worth CDN$1000 I will get the $1000 only after maturity. or is there a possibility that the bond (piece of paper) could be worth say $1200 at the time of maturity? or may even be $800?
What makes this lucrative? (fear of even banks getting liquidated and you loose your money?)
I think, as for now, it is not possible to open a new RRSP account with Canada bonds. You can invest in existing account though. Also, the time frame within which you can invest has gone down from 8 to 4 months.
Thank you again Ashedfc
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Originally posted by ashedfc
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Originally posted by manserwadekar
Thank you for the reply. How these are different than lets say Certificates or even regular savings account. The part that confuses me most is about the value of Bond. I can understand the value of Gold can increase or decrease but if I have bonds worth CDN$1000 I will get the $1000 only after maturity. or is there a possibility that the bond (piece of paper) could be worth say $1200 at the time of maturity? or may even be $800?
What makes this lucrative? (fear of even banks getting liquidated and you loose your money?)
These bonds are traded in the open market, which makes a BID-ASK (buyer & seller), & they trade as per their intrinsic value, interest rates, financial strength of the issuer, & several other factors. Your question can be answered with this example---
1. Govt of Greece 10yr Bond couple of days back, was paying close to 11% yield, which means the price was driven down as everyone wants to get rid of it, (a $1000 value is being sold at less than $1000, say $500 or even $200, or whatever the BID price is), so as the market value goes down, the yield goes high. (Because its still paying the same interest for the face value of $1000). In this case its Euro. So the markets had driven Govt of Greece bonds to such a low value that the yields were over 11%. In other words, investors were expecting Govt. of Greece to default (official term for bankrupt) on their bonds, or even restructure for a lesser interest/value (we call it haircut in the bond market). This is precisely a case study happening live these days.
2. Govt of Japan 10yr bond is yielding 0.87%, its exactly the reverse of Greece. So much money is piling up to buy JGB (Japanese Govt Bond) that the value is more than double or triple say $2000 or $3000, that the yields has gone so low. So many buyers bidding up the price. It means, investors don't expect Japan to default, or they consider Japan to keep its promise at the time of bonds maturity.
Banks going bankrupt is entirely a different ballgame - its nothing to do with the Govt. bond market, in-fact its the MBS, CDO, CDS, CDS swap, markets which took them down.
