Fixed Income

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Introduction to Money Market Products

Money market products are short-term debt instruments that mature within 364 days. The money market is the way that governments, institutions and corporations satisfy their short-term cash requirements. Money market products offer security, yield and liquidity for investors seeking a short-term home for their capital.

All money market investments are fixed-income instruments. In other words, at the time you invest, the rate of return is fixed, so you know precisely how much your investment will yield provided you hold the instrument to maturity. Settlement is same-day, which provides your client with emergency cash prior to maturity.

Government of Canada Treasury Bills

Treasury bills, also called T-bills, usually yield higher returns than typical savings accounts and term deposits, but often (typically) the lowest yields when compared to other money market instruments. Government of Canada T-bills are the largest and most liquid component of the domestic money market. They offer a high level of security and no withholding tax for foreign investors. Interest is calculated on a discount basis.

Provincial T-bills tend to offer higher yields than federal T-bills, with credit ratings dependent on the issuing province.

Federal Government Guarantees

Federal government guarantees are issued by crown corporations or by companies where the Government agrees to guarantee debt for a particular project. These issues tend to have a yield enhancement over T-bills. Some examples are: Business Development Bank, Export Development Corp., and Canadian Wheat Board.

Provincial Treasury Bills and Notes

Provincial T-Bills and Notes are guaranteed by the issuing province, where the credit rating is dependent upon the issuing province. These products have a yield enhancement over federal government products. Provincial T-Bills and Notes have terms that tend to be less than 6 months and are not subject to withholding tax for foreign investors.

Bankers' Acceptances (B.A.)

Bankers' Acceptances are somewhat unique securities to Canada. An investor might find bankers' acceptances attractive because they are highly liquid investments that yield a higher rate of return than Government of Canada T-bills. A bankers' acceptance can be regarded as a negotiable, certified cheque made out to the order of the bearer. The term "acceptance" means that the issuing bank guarantees the funds borrowed by the client company, and the quality of each investment depends on the credit rating of the accepting bank. Bankers' acceptances tend to be issued in 1 to 3 month periods.

Commercial Paper

Commercial paper is issued by corporations on their own creditworthiness without prospectus. Notes are typically issued in 1, 2 and 3 month terms, but may be issued for any term from 1 day to 1 year. Yield is a function of the current market credit conditions, the creditworthiness of the issuer, and the term.

Commercial paper is assigned a rating, usually by Dominion Bond Rating Service (DBRS). If commercial paper is sold prior to maturity, its value will depend on the creditworthiness of the issuer and the market conditions at the time of sale. R1 is considered investment grade. It is divided into sub-sections: High, Medium and Low.

The information contained herein is considered accurate at the time of posting. CIBC, CIBC World Markets Inc. and CIBC Investor Services Inc. reserve the right to change any of it without prior notice. It is for general information purposes only. Clients are advised to seek advice regarding their particular circumstances from their personal tax advisors.

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