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Tag: Fixed income

  • If not bonds, then what? – MoneySense

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    Over the same time, equity markets have provided returns well above historical averages, which can lead people to take more risk than they normally would by reducing their bond holdings.  

    Adding to that, if you look at pre-tax historical bond returns, there have been some long stretches when returns have been really bad as you can see in the table below.

    U.S. government bond returns

    Time Period Annualized Return
    Before Inflation After Inflation
    1926–2024 4.9% 1.9%
    1926–1980 3% 0.1%
    1980–2020 9.1% 5.9%
    2020–2024 -5.8% -9.6%

    Given that historical context and the knowledge that from 1980 to 2020 we were in a decreasing interest rate environment, ideal for bonds, why would you invest in bonds today? 

    Your question reminds me of a book I read about 10 years ago, Why bother with bonds? The author, Rick Van Ness, suggests there are four reasons to consider bonds: 1. Stocks are risky, 2. Bonds make risk more palatable, 3. Bonds can be a safe bet, and 4. Bonds can be an attractive diversifier in your portfolio. I’ll walk through each of these but, as I do, consider how each of these would apply to your portfolio needs.

    1. Stocks are risky

      I am guessing you have read that equities become safer over time. That is true and false. Sure, if you invest $1 today in equities, the longer you hold it the more likely you are to enjoy positive returns. You can see this looking at the historical data. Great! But does that mean equities became safer? No!

      If you have a $100,000 portfolio and equities drop 40%, taking your portfolio to $60,000, are you feeling good that the $1 you invested 10 or 20 years ago may still have a positive return? No, you are thinking you just lost $40,000. Will it get worse, will you get your money back, and how long will it take? What if you had a million-dollar portfolio that went to $600,000? 

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      Equity markets are always at risk of dropping. What if they drop while you are drawing an income or spending money from your portfolio? The reason for holding bonds or an alternative to bonds is to protect the money you plan to spend in the short term from market declines and provide liquidity for spending needs.

      2. Bonds make risk more palatable

      Holding bonds may prevent you from buying high and selling low. Imagine you have a $1-million portfolio rapidly dropping to $600,000; what are you going to do? Buy, sell, or hold? Some people will panic and sell, which is the real threat to investment success. Volatility on its own is not a problem. It only becomes a problem when it is combined with a withdrawal.  

      What typically happens when a panic sell occurs? You wait for the right time to get back into the market, if you ever get back into the market. A scared investor doesn’t wait until things get even worse to invest so they can buy low. Instead, they wait until markets recover, things feel good, and then they buy high.   

      In this case the reason for holding bonds or an alternative to bonds is to anchor your portfolio so that it only drops to an amount you can tolerate before panic selling. Liquidity is not necessarily a requirement to make risk more palatable.  

      Have a personal finance question? Submit it here.

      3. Bonds can be a safe bet

      In its basic form, a bond is a simple interest-only loan. You lend money to a government or company and in return, they promise to pay you a rate of return. At the end of the term, they give you back your money. There are some risks with bonds, often associated with changes in interest rates, the length of the term, the strength of the originator, and the ability to buy and sell bonds. However, in general they are safer than equities at protecting your capital—capital you can use for spending. Equities are for protecting your long-term purchasing power, matching or beating the rate of inflation.

      If you are considering an alternative to bonds, ask yourself: is the investment as safe as a bond? 

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    Allan Norman, MSc, CFP, CIM

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  • Pricing Insights: Analyzing quote data across global credit markets | Insights | Bloomberg Professional Services

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    Measuring quote and trade reference differences

    To address this, we looked at 4 markets – U.S. Investment Grade, U.S. High Yield, EUR Investment Grade, and GBP Investment Grade, as they are among the most liquid credit markets in the world.

    For the U.S. markets, we used TRACE as our trade source. For EUR and GBP markets, we used Bloomberg data as our source. We considered trades that are >250,000 (local currency) from August 2025, and after applying certain other filters and simplifying assumptions to keep the analysis succinct and viable, the remaining trades served as our collective “ground truth” for benchmarking.

    Next, we calculated the difference between three benchmarks that were observable just prior to each trade, and the trade level itself:

    • IBVAL – pricing source available on the Bloomberg Terminal via PCS (IBVL) and for delivery through Bloomberg’s real-time market data feed, B-PIPE. It makes use of both quote and recent trade data to produce a trade level reference price and to help answer the question: If this bond were to trade right now, where would it most likely trade? It is explicitly targeting trade expectations.
    • CBBT – rules-based composite price which filters available executable quote levels in real-time to produce context for trading. It does not take trade information into account. 
    • Median quote –  a simple quote-based composite that reflects the median of available quote levels, without applying additional filters or weighting.

    At charts presented below (Charts 1-4) those differences are aggregated and displayed as distributions (boxplots) by market. The Y-Axis is a measure of that difference in price. Positive results (the upper half of the chart) suggest that a trade was tighter than (inside, or better than) the benchmark level, or conversely, the benchmark level was wider than the trade level.

    Negative numbers (the lower half of the chart) suggest that the trade was wider than (outside, or worse than) the benchmark, or conversely, the benchmark level was tighter than the trade level. The 0 line means that a trade level and benchmark level were the same.

    The boxplot itself captures the distribution of differences, shown as the 25th and 75th percentiles (box), as well as the 10th and 90th percentiles (whiskers). The 50th percentile (median) is shown as a light gray line through the box.

    U.S. High Yield - August 2025

    EUR Investment Grade - August 2025

    GBP Investment Grade - August 2025

    How quote and trade benchmarks perform across global credit markets

    Based on the U.S. Investment Grade results shown in Chart 1, we can observe how each benchmark performs versus traded levels. We can see IBVAL’s 50th percentile difference falls almost exactly on the 0 line, suggesting that its performance is tightly coupled with trade levels. This is by design, as IBVAL is intended to be a trade reference price for pre-trade workflows. Analogous values for CBBT (13.5 cents) and Median Quote (9 cents) are consistent with expectations for quote composites, which are away from traded levels.

    Viewed slightly differently, since IBVAL’s light blue box is right on top of the 0 line, it is considered centered on the traded market; trades are as likely to be slightly too tight as too wide. For CBBT, its dark blue box is fully above the 0 line and we see 92% of trades occur inside (tighter than) this benchmark’s bid/ask. For the Median Quote, its purple box is also fully above the 0 line and we see 82% of trades occur inside (tighter than) this benchmark’s bid/ask.

    Chart 2 (U.S. High Yield), Chart 3 (EUR Investment Grade), and Chart 4 (GBP Investment Grade) tell similar stories. Though the specifics match their respective market dynamics, in each case, we see IBVAL centered on the traded market and quote composites shifted away from traded levels.

    How Bloomberg solutions can help with price discovery

    Quote data and reference prices remain critical tools for traders to access real-time information on far more bonds than might trade in any period of time. The availability of a trade reference price such as IBVAL helps strengthen the pre-trade process, even if local dynamics might vary across markets. This enables traders to make use of a consistent set of tools across their global credit portfolio.

    Interested to learn more about using IBVAL for your pricing needs? Click here.

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    Bloomberg

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  • Why fixed income is back in favor with global investors | Insights | Bloomberg Professional Services

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    Public and private markets converge

    Public high yield remains roughly the same size as a decade ago, about $1.5 trillion, but its composition has changed dramatically. Higher-quality issuers now dominate the market, while the more aggressive edge of credit creation has shifted toward leveraged loans and private credit.

    Leveraged loans, used in leveraged buyouts (LBOs) and private equity, are now also at nearly $1.5 trillion, with private credit following a similar rise. Together, they’ve absorbed much of the growth that once flowed into the public high-yield bond market.

    That migration has effectively fused the two spheres into a single continuum of credit, from liquidity on one end to flexibility on the other. As Brad Foster, Head of Fixed Income & Private Markets at Bloomberg, put it, “one of the most striking shifts in fixed income is how the once-clear line between public and private credit is blurring.” Direct lending, once a niche for single lenders, has evolved into multi-lender clubs, drawing in investment-grade borrowers and private equity sponsors who now choose opportunistically between public and private funding.

    Direct lending, once a niche for single lenders, has evolved into multi-lender clubs, drawing in investment-grade borrowers and private equity sponsors who now choose opportunistically between public and private funding. This convergence reflects not only the maturation of private markets but also the structural diversification of corporate financing, a trend likely to accelerate as investors continue to search for yield and liquidity beyond traditional bond markets. “There’s almost no scenario where, in the next few years, privates or alternatives are anything less than what they are today. In fact, they’ll be significantly larger,” said Foster.

    Insurance companies take the lead

    The most powerful structural driver of that continuum is insurance companies, as they become key allocators to private credit.

    With annuity issuance reaching about $430 billion in 2023 and projected to reach $1.5 trillion by 2030, according to Carlos Mendez, Co-Founder and Managing Partner at Crayhill Capital Management, a torrent of long-duration capital is being deployed directly into private deals.

    “This is a fundamental realignment,” Mendez said. “Deposits are moving out of the broader banking community, while capital is flowing into insurance firms.”

    Demographics are the underlying engine, Mendez noted. By 2034, the U.S. population aged 65 and older is projected to outnumber children under 18. More than 10,000 Americans are turning 65 each day through the decade, and their roughly $80 trillion in household wealth is expected to migrate steadily toward products that, like fixed income, deliver predictable income and security.

    Scale, discipline, and the next test

    Private credit is entering a new phase of maturity, shaped by diversification, scale, and a renewed emphasis on discipline. “Once synonymous with direct lending, the market has grown to cover asset-based finance, junior capital, and cross-border expansion,” said Christina Lee of Oaktree Capital.

    Scale now matters as much as yield. Borrowers increasingly prefer lenders capable of providing large, repeatable facilities. Yet experience, not just size, will determine who successfully navigates the next downturn: only about 3.5% of the roughly 600 direct lenders in the market have managed portfolios through a full credit cycle.

    That experience gap is prompting a renewed focus on transparency and risk controls as the industry confronts the opacity investors once tolerated. Across the market, managers are strengthening collateral monitoring and liquidity oversight, applying lessons learned from past excesses to booming sectors like renewable energy and leveraged lending. As private markets scale, old-school discipline may prove the most durable edge.

    ETFs redefine efficiency and access

    While private markets expand the credit universe, public markets are also evolving as fixed income ETFs become essential tools for price discovery, liquidity, and portfolio efficiency. Fixed income indices are at the center of this evolution, providing the benchmarks that underpin ETF design, guide portfolio construction, and define performance standards across the bond market.

    Today, more than $1 trillion in assets track Bloomberg fixed income indices, underscoring how the ETF structure has institutionalized bond investing. Innovation now lies not in leverage but in how funds manage flows, distribute income, and maximize after-tax yield. For example, through in-kind transfers and swap-based structures, ETFs can convert coupon income into unrealized capital gains, turning tax efficiency into a new source of alpha.

    The versatility of ETFs is widening access to fixed income. Investors can now use them to express precise credit views, from short-duration Treasuries to investment-grade corporates, or even portfolios that incorporate elements of private credit exposure. Active fixed-income ETFs are also emerging as a genuine growth area, reflecting the complexity and fragmentation of the bond market, which is harder to replicate than equities.

    In many ways, the rise of fixed-income ETFs mirrors the broader transformation of credit markets. What began as a vehicle for equity-style trading is maturing into a strategic fixed-income allocation tool, channeling liquidity into bonds with greater efficiency, flexibility, and scale.

    AI and the Fed: A new macro equation

    The macro environment remains a shifting backdrop. With inflation cooling and the Federal Reserve’s focus shifting to employment, the risk of a slowdown, amplified by automation and AI-driven restructuring, now looms larger than inflation.

    The rise of artificial intelligence complicates that macro picture. Capital expenditure on data centers and computing infrastructure could contribute as much as 1.5 percentage points to U.S. GDP growth annually through the decade, even as it displaces workers across industries. That scale of investment is difficult to model, and parallels to the early-2000s tech exuberance linger. Rising energy demand and power prices linked to AI infrastructure also add pressure. This uncertainty is closely monitored by the Fed.

    “There’s a cyclical slowdown being masked by this structural AI theme,” Misra warned. “The Fed can’t let this run too much, so that’s why they will be quick to cut rates.”

    Looking ahead

    Supported by favorable demographics and policy, the bond market is evolving toward a new equilibrium, one defined by sharper credit selection, disciplined duration management, and deeper structural sophistication. With insurers driving private credit growth, ETFs redefining access, and investors rediscovering the value of yield and discipline, fixed income is entering a new phase of growth marked by stability, net yield maximization, and product sophistication.

    To that end, fixed income indices will continue to play a central role in this next phase, offering the structure, transparency, and comparability needed to navigate an increasingly complex market landscape.

    Discover how Bloomberg fixed income indices deliver clarity, consistency, and insight across the bond market landscape, click here.

    Insights in this article are based on panels and fireside discussions at the Bloomberg Future of Fixed Income event held in New York in October 2025.  

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    Bloomberg

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  • BDC-issued debt: A public window into private credit issuers | Insights | Bloomberg Professional Services

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    The data and other information included in this publication is for illustrative purposes only, available “as is”, non-binding and constitutes the provision of factual information, rather than financial product advice.   BLOOMBERG and BLOOMBERG INDICES (the “Indices”) are trademarks or service marks of Bloomberg Finance L.P. (“BFLP”). BFLP and its affiliates, including BISL, the administrator of the Indices, or their licensors own all proprietary rights in the Indices. Bloomberg L.P. (“BLP”) or one of its subsidiaries provides BFLP, BISL and its subsidiaries with global marketing and operational support and service. Certain features, functions, products and services are available only to sophisticated investors and only where permitted. Bloomberg (as defined below) does not approve or endorse these materials or guarantee the accuracy or completeness of any information herein, nor does Bloomberg make any warranty, express or implied, as to the results to be obtained therefrom, and, to the maximum extent allowed by law, Bloomberg shall not have any liability or responsibility for injury or damages arising in connection therewith. Nothing in the Services or Indices shall constitute or be construed as an offering of financial instruments by Bloomberg, or as investment advice or investment recommendations (i.e., recommendations as to whether or not to “buy”, “sell”, “hold”, or to enter or not to enter into any other transaction involving any specific interest or interests) by Bloomberg. Information available via the Index should not be considered as information sufficient upon which to base an investment decision. All information provided by the Index or in this publication is impersonal and not tailored to the needs of any person, entity or group of persons. Absence of any trademark or service mark from this list does not waive Bloomberg’s intellectual property rights in that name, mark or logo.   For the purposes of this publication, Bloomberg includes BLP, BFLP, BISL and/or their affiliates.  

    BISL is registered in England and Wales under registered number 08934023 and has its registered office at 3 Queen Victoria Street, London, England, EC4N 4TQ. BISL is authorised and regulated by the Financial Conduct Authority as a benchmark administrator. © 2025 Bloomberg. All rights reserved.
     

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    Bloomberg

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  • Bloomberg Chartbook: Private Company M&A H1 2025 | Insights | Bloomberg Professional Services

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    The data included in these materials are for illustrative purposes only. The BLOOMBERG TERMINAL service and Bloomberg data products (the “Services”) are owned and distributed by Bloomberg Finance L.P. (“BFLP”) except (i) in Argentina, Australia and certain jurisdictions in the Pacific Islands, Bermuda, China, India, Japan, Korea and New Zealand, where Bloomberg L.P. and its subsidiaries (“BLP”) distribute these products, and (ii) in Singapore and the jurisdictions serviced by Bloomberg’s Singapore office, where a subsidiary of BFLP distributes these products. BLP provides BFLP and its subsidiaries with global marketing and operational support and service. Certain features, functions, products and services are available only to sophisticated investors and only where permitted. BFLP, BLP and their affiliates do not guarantee the accuracy of prices or other information in the Services. Nothing in the Services shall constitute or be construed as an offering of financial instruments by BFLP, BLP or their affiliates, or as investment advice or recommendations by BFLP, BLP or their affiliates of an investment strategy or whether or not to “buy”, “sell” or “hold” an investment. Information available via the Services should not be considered as information sufficient upon which to base an investment decision. The following are trademarks and service marks of BFLP, a Delaware limited partnership, or its subsidiaries: BLOOMBERG, BLOOMBERG ANYWHERE, BLOOMBERG MARKETS, BLOOMBERG NEWS, BLOOMBERG PROFESSIONAL, BLOOMBERG TERMINAL and BLOOMBERG.COM. Absence of any trademark or service mark from this list does not waive Bloomberg’s intellectual property rights in that name, mark or logo. All rights reserved. © 2025 Bloomberg. 956841 0525

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    Bloomberg

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  • Powering the Future: A Modern Benchmark for a Multi-Polar World | Insights | Bloomberg Professional Services

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    Over the past 20 years, the global energy market has transformed due to three key forces: the U.S. shale revolution, Europe’s LNG balancing role, and Asia’s rising demand dominance.

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    Bloomberg

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  • Steady momentum, strategic shifts: Inside EMEA’s sustainable finance landscape | Insights | Bloomberg Professional Services

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    How would you summarize the state of the global and EMEA sustainable fixed income market as of Q1 2025? What are the most notable shifts compared to previous quarters?

    The year’s first quarter marked a steady start for global sustainable fixed income markets, with issuance volumes holding near the $300bn mark. While there was a slight decline compared to the previous quarter, mainly due to macroeconomic volatility, activity has generally remained solid and broadly aligned with recent trends.

    In EMEA, green bonds continue to anchor the region’s sustainable finance landscape. Climate remains and will continue to be a central focus, particularly as the energy transition faces increasing pressure from the rising power demands of AI.

    The market is holding firm, but we are seeing a gradual shift in strategies as issuers and investors respond to this evolving dynamic.

    In Q1 2025, we saw nearly $300bn in sustainable bond and loan issuances globally, despite a slight dip in volume. What key factors are driving investor resilience in this space, particularly in EMEA?

    Investor resilience in EMEA stems from structural factors rather than short-term sentiment.

    Regulatory support, long-term policy commitments, and market familiarity with green and social instruments continue to underpin demand. Green bonds lead overall market supply, but social bonds also gained traction, with $20.9bn issued in Q1. This suggests a broadening investor appetite for sustainability themes.

    Green bonds continued to dominate GSS (green, social, and sustainability) issuances this quarter, with social bonds also seeing significant traction in EMEA. What does this shift in balance signal about the region’s sustainability priorities?

    In Q1 2025, both France and the Netherlands made significant contributions to the social bond market reflecting their commitment to addressing social challenges through sustainable finance instruments. Their issuances accounted for 45 per cent of social issuance in Q1 in EMEA. France’s Caisse d’Amortissement (CADES) issued EUR2.6bn of social bonds focused on healthcare and social inclusion and UNIDEC issuing 2.18 bn focused on access to education and employment generation. This underscores France’s approach to financing social initiatives.

    In Netherlands, BNG Bank continued its support for social housing through its bond programs focusing on affordable housing with a similar size issuance of more than $2.5bn.

    These bonds underscore the EMEA region’s dedication to addressing social challenges through sustainable finance. These actions signal a strategic shift towards a more inclusive and comprehensive approach to sustainability, balancing environmental goals with social imperative.

    The continued dominance of green bonds, which accounted for more than half of global GSS issuance in Q1, highlights that climate and environmental goals remain at the core of sustainability strategies in EMEA.

    Countries and corporates in the region are prioritising decarbonization, renewable energy, energy efficiency, and green infrastructure, supported by government policy and market expectations.

    Saudi Arabia topped the list of debut GSS bond issuers in Q1 2025 with $1.6bn in green bonds. How do you interpret the growing participation of Gulf economies in sustainable finance markets?

    The surge in GSS activity from Gulf economies, led by Saudi Arabia in Q1 2025, reflects a deliberate strategy to diversify funding sources and signal greater alignment to global markets. The kingdom’s inaugural sovereign green bond, part of a $1.5bn euro-denominated issuance, anchors its Green Financing Framework in high-profile environmental targets.

    This move is not symbolic. It aligns with broader national development goals under Vision 2030 and demonstrates a growing readiness among Gulf issuers to compete in international capital markets on sustainability credentials.

    The use of euro-denominated instruments also suggests an intent to broaden the investor base.

    Your report highlights SDG 11 (‘Sustainable Cities and Communities) as the most commonly referenced goal in GSS frameworks. Why do you think this SDG is leading, and what does this say about issuer strategy in 2025?

    We see that issuers are prioritising SDG 11, with a particular focus on energy-efficiency infrastructure, in response to growing concerns over climate-related risks such as extreme heat and flooding, especially in urban areas. As cities continue to bear the brunt of climate disruptions, resilience and sustainability have become a top priority.

    Rather than simply meeting disclosure requirements, issuers are using SDG 11 as a framework to future-proof assets and mitigate long-term operational risks. For example, UAE-based Omniyat’s debut green bond targets environmentally sustainable real estate, a move that reflects both regulatory momentum and growing investor scrutiny on the real-world impact of GSS-labelled instruments.

    This article was written by Neesha Salian and is reproduced from Gulf Business.

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    Bloomberg

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  • IFRS 9 SPPI test and rising data needs: Sustainability Linked Bonds in focus | Insights | Bloomberg Professional Services

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    What is the SPPI test under IFRS 9?

    Under IFRS 9, the classification of a financial asset depends on:

    • The business model under which the asset is held, and
    • The contractual cash flow characteristics of the asset—assessed through the SPPI test.

    If the cash flows are solely payments of principal and interest on the principal amount outstanding, the asset may qualify for amortized cost or fair value through other comprehensive income (FVOCI) classification. Otherwise, it must be measured at fair value through profit or loss (FVTPL).

    This test ensures that instruments with leverage, equity-like features, or embedded derivatives that alter basic lending characteristics are excluded from amortized cost or FVOCI treatment.

    IFRS 9 amendments impact on the SPPI test and coupon features

    On 30 May 2024, the International Accounting Standards Board (IASB) issued amendments to IFRS 9 and IFRS 7 following its Post-Implementation Review (PIR) of the classification and measurement requirements. One significant area of clarification was the treatment of financial instruments with coupon adjustment features—a topic that has gained tremendous relevance with the rise of sustainable finance.

    These amendments aim to provide clarity on whether and how coupon adjustment features, such as sustainability-linked interest rates, affect the SPPI assessment. Importantly:

    • The amendments emphasize that contractual terms that vary cash flows based on sustainability targets can still pass the SPPI test—provided they are consistent with a basic lending arrangement.
    • This includes Sustainability-Linked Bonds (SLBs), even though the standard doesn’t explicitly address them by name.

    These changes will become effective for annual reporting periods beginning on or after 1 January 2026, giving firms little time to adapt their systems and methodologies.

    Data challenge in SPPI testing for sustainability-linked bonds

    While the accounting guidance is now more refined, it introduces an intensified data challenge. In particular, firms must capture detailed contractual terms—often buried in documentation—to determine compliance with the SPPI criteria for a current universe of over 1,100 Sustainability Linked Bonds.

    Consider the bond issued by Wienerberger AG on October 4, 2023 (FIGI BBG01JHDRVZ4). This bond offers a 4.875% coupon and matures on October 4, 2028. It incorporates two Key Performance Indicators (KPIs): KPI 1 tracks GHG emission scope 1 & 2 intensity, and KPI 2 measures revenue from building products that support net-zero buildings.

    A failure to meet the Sustainability Performance Target (SPT) for KPI 1 will result in a 25 basis point (bps) per annum increase in the coupon, effective October 4, 2027. Similarly, missing SPT 2 will trigger a 50 bps per annum coupon increase on the same date.

    The maximum possible coupon step-up of 75 bps is significant, particularly for a bond with a mid-single-digit coupon. This represents a substantial relative impact of approximately 15.4% (0.75%/4.875%), indicating a material change to the bond’s effective yield, which would likely lead to a failure of the SPPI test.

    In contrast, the Capital Airport Group bond, issued on August 27, 2021 (FIGI BBG012C4X0K3), included a step-up margin of 10 bps on a 3.45% coupon at issuance. This would likely satisfy the SPPI criteria.

    Beyond the initial assessment, a further challenge lies in accurately tracking the observation date and the effective date of any coupon step-up. Once these dates have passed, the securities will meet the SPPI test, as no further step-ups need to be considered.

    How can we help?

    To prepare for the 2026 implementation date, Bloomberg’s Enterprise Data Regulatory team is reviewing its rule engine for SPPI classification of all instruments with non credit step up features. It will also add new fields that aim to quantify the magnitude and materiality of non credit linked coupon step-ups, for example: 

    • Cumulative basis point step-up that would occur if non-credit events are triggered.
    • Cumulative coupon step-up as a percentage of the original coupon.
      Both figures should be viewed in combination with the SPPI test result (IFRS9_SPPI_TEST) and attribute (IFRS9_SPPI_ATTRIBUTE)

    Notably, firms can automate and scale their SPPI determination not only at the time of issuance but also throughout its duration.

    Bloomberg’s Regulatory Data Solutions are available via Data License for scalable enterprise-wide use through Bloomberg’s ready-to-use data website, data.Bloomberg.com and can be delivered via SFTP, REST API or into a cloud environment. 

    To learn more about Bloomberg’s full suite of regulatory data solutions click here.

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    Bloomberg

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  • What is Sun Life’s new decumulation product? – MoneySense

    What is Sun Life’s new decumulation product? – MoneySense

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    A Canadian retiree’s main decision with this Sun Life product is the age they want the funds to last until (the maturity age). They can choose from 85, 90, 95 or 100 (or select a few with a combination of ages); but they can also start drawing down as early as age 50. Sun Life recalculates the client payments annually, at the start of each year, based on the account’s balance. That has the firm looking at the total amount invested, payment frequency, number of years remaining before the selected maturity age, estimated annual rate of return (expected return is 5.5% but a conservative 4.5% rate is used in the calculations) and any annual applicable regulatory minimums and maximums.

    Birenbaum says holders of MyRetirementIncome can arrange transfers to their bank accounts anywhere from biweekly to annually. While the payment amount isn’t guaranteed, they can expect what Sun Life calls a “steady income” to maturity age, so the payment isn’t expected to change much from year to year. If the client’s circumstances change, they can alter the maturity date or payment frequency at any time. While not available inside registered retirement savings plans (RRSPs), most other account types are accommodated, including registered retirement income funds (RRIFs), life income funds (LIFs), tax-free savings accounts (TFSAs) and open (taxable) accounts.

    Compare the best RRSP rates in Canada

    Emphasis on simplicity and flexibility

    In a telephone interview, Eric Monteiro, Sun Life’s senior vice president of group retirement services, said, in MyRetirementIncome’s initial implementation, most investments will be in RRIFs. He expects that many will use it as one portion of a retirement portfolio, although some may use it 100%. Initial feedback from Canadian advisors, consultants and plan sponsors has been positive, he says, especially about its flexibility and consistency. 

    As said above, unlike life annuities, the return is not guaranteed, but Monteiro says “that’s the only question mark.” Sun Life looked at the competitive landscape and decided to focus on simplicity and flexibility, “precisely because these others did not take off as expected.” The all-in fee management expense ratio (MER) is 2.09% for up to $300,000 in assets, but then it falls to 1.58% beyond that. Monteiro says the fee is “in line with other actively managed products.”

    Birenbaum lists the pros to be simplicity and accessibility, with limited input needed from clients, who “simply decide the age to which” they want funds to last. The residual balance isn’t lost at death but passes onto a named beneficiary or estate. Every year, the target withdrawal amount is calculated based on current market value and time to life expectancy, so drawdowns can be as sustainable as possible. This is helpful if the investor becomes unable to competently manage investments in old age and doesn’t have a trusted power of attorney to assist them. 

    As for cons, Birenbaum says that it’s currently available only to existing Sun Life Group Retirement Plan members. “A single fund may not be optimal for such a huge range of client needs, risk tolerance and time horizons.” In her experience, “clients tend to underestimate life expectancy” leaving them exposed to longevity risk. To her, Sun Life’s approach seems overly simplistic: you “can’t replace a comprehensive financial plan in terms of estimating sustainable level of annual draws with this product.” 

    In short, there is “a high cost for Sun Life doing a bit of math on behalf of clients… This is a way for Sun Life to retain group RRSP savings when their customers retire … to put small accounts on automatic pilot supported by a call centre, and ultimately, a chatbot. For a retiree with no other investments, it’s a simple way to initiate a retirement income.”

    However, “anyone with a great wealth advisor who provides planning as well as investment management can do better than this product,” Birenbaum says. “For those without advisors, a simple low-cost balanced fund or ETF in a discount brokerage will save the client more than 1% a year in fees in exchange for doing a little annual math.”

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    Jonathan Chevreau

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  • How to renovate your home on a fixed income – MoneySense

    How to renovate your home on a fixed income – MoneySense

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    But just because you’re on a tight budget doesn’t mean you’re stuck with your dated décor and dysfunctional layout. There are options, even for those who can’t tap into a steady flow of extra cash. Let’s explore what’s possible.

    Why traditional mortgages and HELOCs may not be the answer

    For many people, the first thought when looking to finance home renovations is a traditional mortgage or a home equity line of credit (HELOC). But for seniors living on a fixed income, this may not be a viable option. Why? Simply put, qualifying for a new mortgage or HELOC typically requires a strong, stable income. When your income is limited to Canada Pension Plan (CPP), Old Age Security (OAC) and Guaranteed Income Supplement (GIS), qualifying for new credit can be tough.

    Now, what about seniors who set up a HELOC before they retired? If that’s you, you might think you’re in the clear. However, it’s essential to weigh the pros and cons of using a HELOC for home renovations. On the plus side, a HELOC allows you to borrow against your home’s equity, and you typically only pay interest on the amount you use. This can make it a flexible option if you’re planning to do renovations in stages. On the flip side, because HELOCs have variable interest rates, your monthly payment could increase over time. And with limited income, even small increases can hit your budget hard.

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    Exploring alternative financing options for home renovations

    If traditional mortgages or HELOCs aren’t in the cards, don’t worry—there are other ways to finance those much-needed home upgrades. Here’s a breakdown of some alternatives:

    1. Cashing out investments

    If you’ve built up some savings in stocks, bonds or other investments, cashing out a portion could be an option. This approach allows you to avoid taking on debt entirely, which is a big plus. However, it’s important to consider the long-term impact on your financial security. Selling investments too soon can reduce your future income and potential growth. Also, depending on how your investments are structured, you might face tax consequences. If you have funds in a tax-free savings account (TFSA), you might consider using those to minimize the tax hit. Always consult with a financial advisor before making any big decisions.

    2. Reverse mortgage

    A reverse mortgage allows homeowners aged 55 and up to convert part of their home equity into cash, which can be used to fund renovations. You don’t have to pay back the loan as long as you live in your home, making it a good option when your cash flow is constrained. However, reverse mortgages can be complicated and come with fees. Plus, the loan balance increases over time, which means less equity to pass on to your loved ones or pay for your own long-term care. Still, for seniors who want to stay in their homes as long as possible, this can be a useful tool.

    3. Personal line of credit

    Another option to consider is a personal line of credit, which works like a HELOC but isn’t tied to your home’s equity. You can borrow a certain amount of money, pay it back and borrow again as needed. The main advantage here is flexibility. But like any form of credit, it’s crucial to keep an eye on the interest rate, which can vary depending on your credit score. (Because there’s no collateral, the rate will always be higher than a HELOC’s and your credit limit will likely be lower.) It’s also important to avoid borrowing more than you can afford to repay, as this could lead to financial trouble down the road.

    4. Private mortgage

    If you’re lucky enough to have family or friends who have money to lend, a private mortgage could be another way to finance your renovations. With a private mortgage, someone you trust lends you money and you agree on the repayment terms. This option can be more flexible and personalized than dealing with a bank or lender, but it’s also important to formalize the agreement to avoid misunderstandings or family tension. As with any financial agreement, make sure both parties are clear about the terms and conditions.

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  • Are GICs worth it for Canadian retirees? – MoneySense

    Are GICs worth it for Canadian retirees? – MoneySense

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    In other words, during the near-zero interest rates that prevailed until recently, investors wanting real inflation-adjusted returns had almost no choice but to embrace stocks. (Read more about TINA and other investing acronyms).  

    GICs have a place in locking in some real-returns, especially if inflation tracks down further. But Raina says investing in bonds offer opportunities to lock in healthy coupon returns, with the prospect of higher capital appreciation opportunities if interest rates fall further, since bonds currently trade at a discount. The risk is the unknown: when interest rates will start falling. Based on what the Bank of Canada (BoC) announced in the fall, Raina feels that could be some time in 2024. (On Dec. 6, the BoC announced it was holding its target for the overnight rate at 5%, with the bank rate at 5.25% and deposit rate at 5%.)

    CFA Anita Bruinsma, of Clarity Personal Finance, is more enthusiastic about GICs for retirees in Canada. “I love GICs right now,” she says. “It’s a great time to use GICs.” For clients who need a portion of their money within the next three years, she says, “GICs are the best place for that money as long as they know they won’t need the money before maturity.”

    Other advisors may argue bond funds could have good returns in the coming years, if rates decline. However, “I would never make a bet either way,” Bruinsma says, “I think retirees looking for a balanced portfolio should still use bond ETFs and not entirely replace the bond component with GICs. However, I do think that allocating a portion of the bond slice to GICs would be a good idea, especially for more nervous/conservative people.” For Bruinsma’s clients with a medium-term time horizon, she recommends laddering GICs so they can be reinvested every year at whatever rates then prevail. 

    GICs vs HISAs

    An alternative is the HISA ETFs. (HISA is the high-interest savings accounts Small referred to above). HISA ETFs are paying a slightly lower yield than GICs and also do not guarantee the yield. “I also like this product but GICs win for the ability to lock in the rate,” says Bruinsma.

    When investing in a GIC may not make sense

    Another consideration is that GICs are relatively illiquid if you lock in your money for three, four or five years or any other term. “If you are uncertain if you will need those funds in the near future, you can look at a high interest savings account ETF like Horizon’s CASH,” says Matthew Ardrey, wealth advisor with Toronto-based TriDelta Financial. “This ETF is currently yielding 5.40% gross—less a 0.11% MER.”

    Apart from inflation, taxation is another reason for not being too overweight in GICs, especially in taxable portfolios. Even though GIC yields are now roughly similar to “bond-equivalent” dividend stocks (typically found in Canadian bank stocks, utilities and telcos), the latter are taxed less than interest income in non-registered accounts because of the dividend tax credit. In Ontario, dividend income is taxed at 39.34% versus 53.53% for interest income at the top rate in Ontario, according to Ardrey. This is why, personally, I still prefer locating GICs in TFSAs and registered retirement plans (RRSPs). 

    When GICs are right for retirees

    Ardrey says GICs can be a valuable diversifier when it’s difficult to find strong returns in both the stock and bond markets. “This is especially true for income investors who would often have more of a focus on dividend stocks.” Using iShares ETFs as market proxies, Ardrey cites the return of XDV as -0.54% YTD and XBB is 1.52% year to date (YTD). “Beside those numbers a 5%-plus return looks very attractive.”

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  • Will GIC rates keep going up in 2024? – MoneySense

    Will GIC rates keep going up in 2024? – MoneySense

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    As a result of these rate hikes, the interest rates available on guaranteed investment certificates (GICs) have risen as well—leading to renewed interest from savers and investors. In fact, over the past 12 months, the average one-year Canadian GIC rate has shot up from 2% to 4.90%. As a result of this move-up in rates, even market-linked GICs—which offer a lower guaranteed interest rate because of higher potential gains linked to the stock market—are offering a minimum guaranteed rate over 2%, as of mid-December 2023.

    How high will GIC interest rates go?

    The interest rates you pay on various types of debt, like a mortgage or a line of credit, depends mainly on the benchmark rate set by the BoC. This, in turn, depends on the prevailing rate of inflation. Simply put, the higher inflation is in Canada, the higher the BoC’s benchmark rate, and the higher the interest rate you pay on your loans. On the bright side, a high-rate environment also offers high GIC interest rates—a boon for Canadian investors.

    When you buy a GIC, you lend money to a bank or other GIC issuer in exchange for a guaranteed amount of interest at the end of an agreed-upon period (such as one, two or five years). 

    We can’t predict future interest rates, but for now, here are some interest rates you can get on long-term non-redeemable GICs at Scotiabank as of mid-December 2023.

    Term Interest rate
    1-year 5%
    2-year 4.3%
    3-year 4.1%
    4-year 4.45%
    5-year 4.35%
    Rates are provided for information purposes only and are subject to change at any time.

    It’s notoriously tricky to pinpoint precisely where interest rates will go, but we can expect that GIC rates will remain relatively high as long as inflation persists in Canada. While inflation is down from the scary heights of 8% in June 2022, it’s still above the BoC’s target rate of 2%. So, rates may remain flat until we see significant cooling in the Canadian economy. This means that while GIC rates may not spike further, the current rates could persist for a while.

    GIC vs. high-interest savings account (HISA)

    Just as the rates for GICs are up, so are those offered on high-interest savings accounts (HISAs). As a result, Canadians are exploring HISAs and drawing comparisons between these and GICs to determine the better investment. While a HISA may be more flexible than a GIC, if you’re looking for higher guaranteed rates of return, GICs could be the way to go. For example, as of early December 2023, money held in a Scotiabank HISA for 360 days will offer you 2.55% to 2.65%.

      HISA Cashable GIC Non-redeemable GIC
    Term 360 days 1 year 1 year
    Interest rate 2.55% to 2.65% 2.85% 5%
    Rates are provided for information purposes only and are subject to change at any time.

    Choosing a GIC

    If you’re considering investing in a GIC, here are the various types on offer:

    • Non-redeemable GICs: You buy a GIC for a set period (called the “term”), with a fixed and guaranteed annual interest rate. At the end of the term, you get your principal back, along with the interest earned. These GICs cannot be cashed in prematurely.
    • Cashable GICs: Unlike non-redeemable GICs, cashable GICs can be cashed in prematurely—before the term of the GIC is complete. You must hold this GIC for at least 30 days, and you can keep the interest earned up to the date you redeem it.
    • Personable redeemable GICs: At Scotiabank, these GICs are currently available for a two-year term. They offer a higher rate of interest than a cashable GIC, and they can be redeemed early, either partially or fully.
    • Market-linked GICs: Market-linked GICs offer investors the safety of traditional GICs and the potential to earn higher returns linked to the stock market. Like a conventional GIC, your principal is protected, and you get a minimum guaranteed interest rate (though it is typically lower than for other GIC types). Additionally, the GIC is linked to a major U.S. or Canadian stock market index—such as the S&P 500 or the S&P/TSX 60. For example, if the index rises 8%, you will get 8% on your GIC instead of the minimum guaranteed rate of about 2.4%.

    Market-linked GICs: pros and cons

    Before you buy a market-linked GIC, here are some points to consider:

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  • How to buy Fidelity ETFs in Canada – MoneySense

    How to buy Fidelity ETFs in Canada – MoneySense

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    ETFs may have lower management fees than comparable mutual funds. And, with such a wide variety of ETFs with different asset allocations to choose from—including funds that combine equities with fixed income and even cryptocurrency—there are ETFs for a range of investors, from conservative to aggressive. You can choose ETFs that try to replicate an entire stock index, such as the S&P 500, or focus on a specific sector or geographical region. Most ETFs are passively managed, but a growing number of funds are actively managed.

    Plus, you can hold ETFs in both non-registered and registered investment accounts. Examples of registered accounts include the registered retirement savings plan (RRSP), tax-free savings account (TFSA) and first home savings account (FHSA).

    Investing in Fidelity ETFs

    In Canada, Fidelity Investments offers a variety of ETFs for investors with different investment objectives, time horizons and tolerance for risk. Investors can consider ETFs in the following categories:

    • Equity ETFs invest in stocks across a broad range of sectors, market capitalizations and geographies.
    • Fixed income ETFs invest in bonds and can be used to generate income, with the potential for capital preservation. 
    • Balanced or multi-asset ETFs invest across asset classes, including stocks and bonds.
    • A sustainable ETF that invests in companies with favourable environmental, social and governance characteristics.
    • Digital asset ETFs have direct exposure to cryptocurrency, such as bitcoin and ether.

    Fidelity ETFs are available through financial advisors and online brokerages. Learn more about Fidelity ETFs.

    Learn more about ETFs

    On this page, we’ll share articles to help you learn about and evaluate ETFs for your investment portfolio. Check back often for more insights.

    • How many ETFs can Canadian investors own?
      ETFs offer Canadian investors an appealing combination of convenience, diversification and low fees. But how many ETFs should you own, and which ones?
    • What investments can I put in my TFSA?
      The TFSA contribution limit for 2024 was recently announced. TFSAs can hold more than just cash. Get to know your TFSA investment options, including some Fidelity All-in-One ETFs that offer portfolio diversification.

    Know your investing terms

    Brush up on investing basics with helpful definitions from the MoneySense Glossary.

    This article is sponsored.

    This is a paid post that is informative but also may feature a client’s product or service. These posts are written, edited and produced by MoneySense with assigned freelancers and approved by the client.

    Commissions, trailing commissions, management fees, brokerage fees and expenses may be associated with investments in mutual funds and ETFs. Please read the mutual funds or ETF’s prospectus, which contains detailed investment information, before investing. Mutual funds and ETFs are not guaranteed. Their values change frequently, and investors may experience a gain or a loss. Past performance may not be repeated.

    The statements contained herein are based on information believed to be reliable and are provided for information purposes only. Where such information is based in whole or in part on information provided by third parties, we cannot guarantee that it is accurate, complete or current at all times. It does not provide investment, tax or legal advice, and is not an offer or solicitation to buy. Graphs and charts are used for illustrative purposes only and do not reflect future values or returns on investment of any fund or portfolio. Particular investment strategies should be evaluated according to an investor’s investment objectives and tolerance for risk. Fidelity Investments Canada ULC and its affiliates and related entities are not liable for any errors or omissions in the information or for any loss or damage suffered.

    Portions © 2023 Fidelity Investments Canada ULC. All rights reserved. Fidelity Investments is a registered trademark of Fidelity Investments Canada ULC.

    The presenter is not registered with any securities commission and therefore cannot provide advice regarding securities.




    About Jaclyn Law

    Jaclyn Law is MoneySense’s managing editor. She has worked in Canadian media for over 20 years, including editor roles at Chatelaine and Abilities and freelancing for The Globe and Mail, Report on Business, Profit, Reader’s Digest and more. She completed the Canadian Securities Course in 2022.

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  • What is a market-linked GIC? – MoneySense

    What is a market-linked GIC? – MoneySense

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    If you like the safety of GICs but also want exposure to the stock market, there’s a type of investment for that: market-linked GICs. These investments guarantee the return of your principal along with a minimum interest rate, while also providing limited exposure to stock market movements.

    How market-linked GICs work

    Unlike a traditional GIC, a market-linked GIC is tied to a particular stock market index—like the Canadian S&P/TSX 60 or the American S&P 500. This gives investors an opportunity to benefit from market gains to a limited extent. We say “limited” because even if the S&P 500 index gains 50% over a three-year period, a GIC linked to that index may limit your gains to, say, 35%.

    Any gain isn’t guaranteed, as no one can predict what the markets will do, but the potential upside is there—and your principal is protected regardless of what the stock market does.

    Of course, you can invest in the stock market by buying individual shares, mutual funds and exchange-traded funds (ETFs). Unlike these, however, a market-linked GIC ensures that you won’t lose any of your principal if there’s a market downturn. Market-linked GICs offer:

    • A guaranteed minimum rate of interest
    • Canada Deposit Insurance Corporation (CDIC) coverage of the GIC’s principal and interest, up to $100,000, in case of a bank failure, if the GIC issuer is a CDIC member institution

    Additionally, there is no fee to invest in a market-linked GIC or other types of GICs.

    How do market-linked GICs and ETFs compare?

    Consider this comparison of a traditional Scotiabank three-year non-redeemable GIC with Scotiabank’s US Tracker Index ETF (SITU) and Scotiabank’s three-year market-linked GIC—both tied to the S&P 500 index. (GIC rates current as of Nov. 20, 2023.)

    Term Minimum guaranteed interest rate Maximum full-term return Principal guarantee Linked index Fee
    Traditional GIC 3 years 4.1% Not applicable Yes None None
    Market-linked GIC 3 years 2.44% Limited to 35% Yes S&P 500 None
    Scotiabank ETF (SITU) None None Matches the index without limit No S&P 500 0.08%

    Are market-linked GICs a good investment?

    Market-linked GICs have several things going for them:

    • They’re eligible for both non-registered and registered investment accounts, including the registered education savings plan (RESP), registered retirement savings plan (RRSP), registered retirement income fund (RRIF), tax-free savings account (TFSA) and registered disability savings plan (RDSP).
    • They have a low minimum investment amount—as low as $500, in the case of Scotiabank’s GICs.
    • Market-linked GICs are eligible for CDIC protection, up to $100,000 per depositor, at CDIC member institutions.

    Are market-linked GICs right for you?

    Like all investments, a market-linked GIC could be a good investment if it aligns with your financial situation, financial goals, risk profile and investment time horizon. Typically, these GICs could suit Canadian investors who:

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    Aditya Nain

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  • Muni-price fixing suit inches closer to settlement with Wall Street

    Muni-price fixing suit inches closer to settlement with Wall Street

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    An almost decade long dispute over price-fixing in the municipal bond market is one-step closer to a settlement after three municipalities secured a small win Thursday.

    Judge Jesse M. Furman of the US District Court for the Southern District of New York granted the request for class certification from two cities and one transportation commission suing eight banks — including Bank of America and Goldman Sachs — for conspiring to fix the rates on variable rate demand obligation bonds.

    The municipalities are seeking pre-trebled damages of $6.5 billion, and the case could head to trial next year, according to Elliott Stein, senior litigation analyst at Bloomberg Intelligence.

    “This is an additional milestone that will push this case to settle eventually,” Stein said in an email after the court denied the banks’ motions to bar plaintiffs’ experts, and granted plaintiffs’ motion for class certification, as expected.

    Stein has been expecting settlements to amount to about $600 million across the 8 defendant banks, which also include Barclays, Citigroup, JPMorgan Chase, Morgan Stanley, the Royal Bank of Canada and Wells Fargo.

    The first of the class action lawsuits was filed by the city of Philadelphia in February of 2019, followed by the city of Baltimore in March of that year, and later by the San Diego Regional Transportation Commission. The lawsuits have since been consolidated.

    These lawsuits followed a series of state False Claims Act lawsuits filed under seal in 2014 and unsealed in 2018, by a Minnesota financial adviser named Johan Rosenberg. 

    In July, the state of Illinois settled its lawsuit for $68 million, saying the case filed on its behalf “almost certainly” would have resulted in a loss, according to a filing by Attorney General Kwame Raoul.

    The so-called VRDOs are long-term bonds that have their rates periodically reset and offer investors the opportunity to return the securities for cash if they think the yields are reset too low. The lawsuits alleged that the banks — acting as remarketing agents on the securities — failed to get the best rates for issuers.

    The only bank that has responded to Bloomberg’s requests for comment on the ruling, JPMorgan, declined to comment.     

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  • Wall Street banks rush to reclaim edge in market for buyout debt

    Wall Street banks rush to reclaim edge in market for buyout debt

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    Wall Street’s top banks are rushing back into the lucrative market for leveraged buyouts to reclaim business from private creditors.

    Banks are committing financing for a slew of new deals — from the $1 billion loan for the purchase of book publisher Simon & Schuster to the roughly $1.7 billion of debt for the acquisition of packaging firm Veritiv. They can win this business, in part, because they’ve cleared out so much of the older debt stuck on their books that made it harder to compete for new offerings.

    Investors, meanwhile, are eager to buy syndicated loans, which gives banks more confidence in bidding for deals. Competition is fierce: There’s been just $13.3 billion of leveraged buyout loans issued so far this year in syndicated markets, versus $65 billion in the same period of 2022, according to JPMorgan Chase.

    “Money is coming flying into credit,” said Richard Zogheb, head of global debt capital markets at Citigroup. “The real challenge is creating supply.”

    Demand for high-yielding assets has been soaring as the US economy proves resilient in the face of the Federal Reserve’s most aggressive monetary tightening in decades. 

    “There’s a face-off between private lenders and the syndicated market for leveraged buyout transactions,” said Kim Harris, a partner and portfolio manager in liquid and structured credit based at Bain Capital Credit. In the end, private equity sponsors are “going to go with whoever has the best execution.”

    Banks, though, have gotten a boost in confidence in the wake of deals like Apollo Global Management’s acquisitions of aluminum products maker Arconic and chemical company Univar Solutions. Both deals were met with strong demand from investors.

    Chris Blum, head of corporate finance at BNP Paribas, said banks have been able to use the success of recent transactions as a way to credibly propose other deals to their risk committees. 

    That, and the Fed’s current fight against inflation, means investors are more willing to support transactions with lower leverage and more lender-friendly documentation — especially to firms with a credit rating equivalent to a B2 or above from Moody’s Investors Service.

    But not every transaction is ready to rely on bank lending. While banks can often offer more-attractive initial pricing than private creditors, they’ll sometimes rely on step-up clauses that increase costs if transactions take longer to close.

    “You could get stuck in transactions for some time,” said Zogheb of Citigroup. “Especially given the current regulatory environment.”

    Private creditors, meanwhile, can offer a firmer guarantee on pricing. Banks lost out on a recent €1.5 billion ($1.65 billion) loan package to help fund the buyout of Constantia Flexibles GmbH, with financing instead coming from private lender HPS Investment Partners.

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