Bonds, debentures and the government issuers

Secured or not

In Canadian usage a bond is a debt security secured by specific assets — a mortgage bond by real property, a collateral trust bond by securities the issuer holds, an equipment trust certificate by rolling stock or aircraft. A debenture is unsecured: it is backed only by the issuer's general credit and its promise to pay. If Cobalt Ridge Mining defaults, its mortgage bondholders take the mill; its debenture holders queue with the other unsecured creditors. The same firm can issue both, and the debenture yields more because it ranks behind.

US textbooks use "bond" for both — which is why an exam question that says debenture is testing whether you know it means unsecured. Government bonds are called bonds by convention even though no asset secures them; the taxing power does.

The issuer ladder

Line up four 10-year issues by yield:

1. Government of Canada (GoC) bonds — the benchmark; lowest yield, no credit risk in Canadian dollars, and the base for the yield curve (Lesson 8.7). Sold at Bank of Canada auctions (funds management — Lesson 8.3). Treasury bills are the under-one-year cousins (Lesson 4.3).
2. Provincial bonds — Ontario, Québec, Alberta and the rest, plus their guaranteed agencies. A spread over GoC that widens with the province's debt and narrows with its rating.
3. Municipal bonds — cities and regions, often through provincial financing authorities. A further spread. Their interest is fully taxable in Canada; the US municipal tax exemption that OpenStax describes does not exist here and must never appear in a Canadian answer.
4. Corporate bonds and debentures — the widest range, priced by the issuer's rating (Lesson 9.6).

Canada Savings Bonds were the retail GoC instrument — non-marketable, redeemable at par; they are no longer issued, and the outstanding ones have matured.

Term buckets

The register sorts by term to maturity: short — up to 3 years; medium — 3 to 10 years; long — over 10 years. A money-market instrument is under one year and is not a bond at all. A 7-year issue is medium; a 30-year GoC is long. The buckets matter because interest-rate risk rises with term (Lesson 9.6) and because a bond drifts down the ladder as it ages — a 30-year bond issued in 2010 is a short-term bond today.

Classify

A Halton Dairy Co-op note secured by its plant — mortgage bond, corporate. An Ontario 10-year — provincial, medium. A City of Waterloo 20-year — municipal, long, taxable. A Tamarack Foods unsecured 5-year — debenture, medium. A 91-day GoC issue — treasury bill, money market, not a bond.