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The Money Management Newsletter: GICs and Fixed Income
How do Guaranteed Investment Certificates compare with NHA Mortgage-Backed Securities?

Primary Market
Product 1- 5 year debt issued by financial institution.

Normally 5 or 10 year securitized pool of NHA insured first mortgages.

Repayment Guarantees

Strength of financial institutions issuing GIC. $100,000 CDIC coverage. Full federal government guarantee of principal and interest through CMHC regardless of amount.
Cashflow Accrued interest on scheduled payment date with original principal at maturity. Blended payment of principal and interest monthly with remaining principal at maturity.
Scheduled Payments Monthly, quarterly, Annual, Semi-annual, compound annual. Monthly on the 15th.(Excluding Weekends & Holidays)
Any Unscheduled Payments No. Yes - On prepayable MBS's holders may receive lump sums of unscheduled principal plus any penalty interest paid by mortgagor. No - On non-prepayable MBS's.
Yield Yield calculated on annual basis, fixed at time of purchase Rates will vary depending on issuer and term selected. Calculated on semi-annual basis. Priced slightly more favorably than similar Government of Canada bonds. Yield on prepayable MBS's will vary with frequency & size of unscheduled prepayments, plus re- investment rate of unscheduled principal received.
Foreign Interest payments subject to Investors non resident withholding tax. Since this is a government security product withholding tax will not apply.
Secondary Market
GIC - No established market to trade GIC's prior to maturity. Fiscal Agents creates a secondary market to handle trades on transferable GIC's purchased at a premium or discount depending on market conditions and face rate of certificate. Maturity dates can range from a few months up to 5 years. MBS - Active and extensive secondary market traded through brokerages and financial service centers. Yields will be determined by market conditions at time of purchase and can be enhanced by unscheduled prepayments if bought at a discount. Maturities of secondary market MBS's can be anywhere from 6 months to over 10 years.
Provided by Fiscal Agents Treasury Division - Bond Trading Desk

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