Bond Calculator

Understanding bond pricing

When market rates are below the coupon rate, bonds trade at a premium. When market rates exceed the coupon rate, bonds trade at a discount. The bond price represents the present value of all future cash flows discounted at the yield to maturity. Canadian investors can access several types of bonds: Government of Canada bonds (considered virtually risk-free), provincial bonds (slightly higher yield), corporate bonds (higher yield with credit risk), and Real Return Bonds (indexed to CPI inflation). Most individual bonds require a minimum purchase of $5,000 and are available through brokers or banks. Yield to Maturity (YTM) is the total return you earn if you hold a bond until it matures, accounting for coupon payments, the purchase price, and the face value received at maturity. It is the most complete measure of a bond's return and is what this calculator computes. Bond prices and interest rates move inversely. When the Bank of Canada raises rates, new bonds offer higher yields, making existing lower-yielding bonds less attractive, so their prices fall. Longer-duration bonds are more sensitive: a 10-year bond drops roughly 8% for every 1% rate increase, while a 2-year bond drops only about 2%. The Canada Savings Bond (CSB) program was discontinued in 2017. Investors seeking similar low-risk government-backed options can consider Government of Canada treasury bills, GICs from CDIC-insured institutions, or Government of Canada bond ETFs on the TSX. Bond interest is taxed as regular income at your full marginal rate in Canada. For tax efficiency, hold bonds inside registered accounts (RRSP, TFSA) where possible.