Questrade offering bonds

I notice that Questrade is offering bonds to their clients. More interestingly, they have a comprehensive list of securities available with tentative pricing. This method of offering is a good step, although they probably will need to automate the transactions.

They claim to be offering it “commission-free”, but the commission is embedded in the bid-ask spread. For example, a Government of Canada bond maturing on December 1, 2011 (a year and a couple months away) is quoted at bid 1.28%, ask 1.26%. This is not bad when you consider that 1-year T-Bills have a yield of 1.23%.

One of the big differences between retail investing and institutional investing is that if you have $100 million lying around, you just can’t dump it all into Ally or some retail savings bank and get your 2%; with large quantities of cash, you have to pile them into government securities in order to get a risk-free return – in this case, locking away $100 million you can get about 1.23%, at least using end-of-September quotations. If you want 2% or higher, you have to go all the way out to December 2015 for Government of Canada debt (2.04% on the ask); if you are willing to settle for a province, Quebec has June 2014 issues for 2.06%.

A retail investor does have the option of putting money risk-free into retail facilities, and thus this makes investing in government bonds quite useless since typically GIC rates (of up to 5 years of maturity) will be higher than prevailing government bond rates.

Corporate debt is another story – you can find higher yields there, but will have to take the appropriate amount of risk, and/or be willing to take debt with very long terms to achieve the desired yield. Most of the interesting issues are also exchange-traded, which alleviates the hassle of dealing with somebody over the telephone.

Finally, Interactive Brokers has a system that enables automated transactions on bonds, but it strongly depends on the corporate issue whether you will have any liquidity available.