Dear Dr. Don,
Is there a way for me to purchase Canadian Treasury bonds? For many years, I have purchased U.S. Treasuries through TreasuryDirect, and I would like to know if I could establish an account with the Bank of Canada for similar purchases of their bonds. If this is not possible, is there a mutual fund of Canadian holdings that I might consider?
-- Ferne Financial
Canada doesn't have a program equivalent to TreasuryDirect to buy Canadian Treasury securities. That doesn't mean you can't buy individual issues of their debt securities. You can.
There are three types: Government of Canada marketable bonds, Government of Canada real return bonds, and Government of Canada Treasury bills. I owned some Canadian T-bills in the early '90s that I purchased through my brokerage firm. Talk to your broker about investing in these securities. Alternately, you can look at exchange-traded funds, or ETFs.
When investing outside of your home country, along with the normal considerations in deciding how to invest, you also need to be concerned about currency exchange practices and how the investment earnings are taxed. Several large investment firms and state pension funds are currently reviewing their currency trades to determine if they were filled at the prevailing foreign exchange rates at the time the trade was executed. If the big players are getting hurt on currency exchange, retail clients need to be vigilant. The Securities and Exchange Commission's online publication, "International Investing," provides a nice primer on the topic.
Two of the many ETFs that came up in the search are: the iShares DEX All Government Bond Index Fund ETF and the Bank of Montreal's Mid Federal Bond Index ETF. I'm not recommending these as investments, just giving you a starting point for your own research.
You will have to talk to your financial adviser about the opportunity to invest in Canadian mutual funds. I haven't been able to determine their availability to a U.S. citizen.
You also may want to revisit your motivation in buying the securities in any of these forms. If it's just a currency play, you can trade the currency without the extra costs associated with holding the debt securities, albeit with the caution I mentioned above. If you're motivated by credit quality, safety or yield considerations, you should weigh these characteristics against the expense of trading in another market.