Bonds in Canada: How They Work and What They Pay

How bonds work in Canada

A bond is a loan. You give the issuer a sum, called the face value or par value, and the issuer promises two things: regular interest payments (the coupon) and the return of the face value on the maturity date. Government of Canada bonds pay their coupon twice a year.

Three kinds of issuers dominate the Canadian market:

• Government of Canada bonds: issued by the federal government, the reference point for every other rate.
• Provincial and municipal bonds: issued by provinces and cities, usually at a slightly higher yield than federal bonds.
• Corporate bonds: issued by banks, utilities, telecoms, and other companies, with a higher yield to pay you for the extra risk of default.

A bond's credit risk depends on who borrows. A federal bond carries the backing of the Government of Canada. A corporate bond is only as solid as the company behind it, which is why credit rating agencies grade them.

Coupon, maturity, and face value

The coupon is fixed when the bond is issued. A $1,000 bond with a 3% coupon pays $30 a year, usually in two payments of $15. At maturity, you get your $1,000 back, as long as the issuer does not default.

Maturities range from a few months (treasury bills) to 30 years or more. In general, a longer maturity means a higher yield, because you lock your money up for longer and take more price risk along the way.

Government of Canada bond yields today

The Bank of Canada publishes benchmark yields every business day. They show what the market pays to lend to Ottawa for each term, and they anchor the rates on GICs, mortgages, and corporate bonds.

The figures below are the latest available on October 20, 2026, from the close of October 16, 2026.

The curve slopes upward: the longer the term, the higher the yield. The Bank of Canada's next rate announcement is scheduled for October 28, 2026, and short-term yields tend to react most to that decision.

Yield vs price: the seesaw

Bond prices and yields move in opposite directions. When market rates rise, existing bonds with lower coupons become less attractive, so their price falls until their yield matches the market. When rates fall, older bonds with higher coupons become more valuable and their price rises.

Here is a simple illustration with annual coupons. Take a 10-year bond with a 3% coupon bought at $100. If yields on similar bonds rise to 4% the next day, the price of your bond drops to about $92 per $100 of face value. If yields fall to 2% instead, its price climbs to about $109.

Why this matters if you hold to maturity

If you keep the bond until it matures, these price swings do not change what you receive. You still collect every coupon and get the face value back. Price risk matters when you need to sell early, or when you own a bond fund that never matures.

Duration measures this sensitivity. A bond or fund with a duration of 7 years will lose roughly 7% of its value if rates rise by 1 percentage point. Short-term bonds have low duration; long-term bonds have high duration.

Bond ETFs vs individual bonds

Many investors buy bonds through an exchange-traded fund rather than one bond at a time. A bond ETF holds hundreds of bonds and trades on the stock exchange like a share, through any online broker. If you are new to these funds, start with our guide on what an ETF is.

The trade-off is simple. An ETF gives you instant diversification and easy trading, but it has no maturity date and charges an annual management expense ratio (MER). An individual bond has a known end date and a known yield if held to maturity, but buying one at a good price through a broker takes more effort.

Which one suits you

• Individual bond: you need a fixed sum on a specific date, such as a down payment in 5 years.
• Bond ETF: you want a permanent bond allocation in a long-term portfolio and plan to rebalance.
• Short-term bond ETF: you want lower price swings and accept a lower yield.

What happened to Canada Savings Bonds

Canada Savings Bonds no longer exist as a savings product. The federal government stopped selling them in November 2017, following Budget 2017. The Bank of Canada states that, as of December 2021, all Canada Savings Bonds and Canada Premium Bonds have reached maturity and stopped earning interest.

If you still hold a paper certificate, it is not growing anymore. You can redeem it at your financial institution by presenting the matured certificate. The Bank of Canada's unclaimed bonds page explains the process.

Quebec savings bonds (Épargne Placements Québec)

Épargne Placements Québec, run by the Government of Quebec, still sells savings products as of October 20, 2026. Its products are fully guaranteed by the Government of Quebec, carry no management or administration fees, and are reserved for Quebec residents.

Rates in effect since October 1, 2026, according to its rates page:

• 1-year fixed-rate bond: 3.05%
• 3-year fixed-rate bond: 3.60%
• 5-year fixed-rate bond: 3.85%
• 10-year fixed-rate bond: 4.45%
• Savings bonds: 3.30% minimum guaranteed rate for the first year

These products can be held in a TFSA, an RRSP, an FHSA, and other registered accounts offered by Épargne Placements Québec. Compare them with the yields above and with bank GICs before you commit.

Bonds vs GICs

A GIC (guaranteed investment certificate) and a bond both pay a fixed rate for a fixed term. The difference lies in who guarantees your money and whether you can sell before maturity. Our explainer on what a GIC is covers the GIC side in detail.

A non-redeemable GIC locks your money until maturity, but its value never moves. A bond can be sold any business day, but at the market price of that day, which may be lower than what you paid. CDIC covers GICs at member institutions up to $100,000 per insured category; it does not cover bonds.

When a GIC wins

If you know you will hold to maturity and stay under the CDIC limits, a GIC is often simpler. Compare the GIC rate for your term with the Government of Canada yield for the same term in the table above. Check current offers in our ranking of the best GIC rates in Canada and project your interest with the GIC returns calculator.

When a bond wins

Bonds make more sense for amounts above the CDIC limits, for terms longer than most GICs, or when you want the option to sell early. A bond ETF is also the standard tool to balance stocks in a diversified portfolio.

How bond income is taxed

Outside a registered account, bond interest is taxed as ordinary income at your marginal rate, the same as GIC interest. If you sell a bond or a bond ETF for more than you paid, half of the gain is taxable, under the current 50% capital gains inclusion rate. Our guide to capital gains tax in Canada explains the calculation.

Because interest is taxed more heavily than capital gains or Canadian dividends, many investors hold bonds inside a TFSA or an RRSP. Inside a TFSA, interest grows tax-free; see our TFSA guide for 2026 contribution room.

Conclusion

Bonds in Canada give you a fixed income with a known end date, at yields between 3.21% and 4.18% for Government of Canada bonds as of October 20, 2026. If you hold to maturity, you know exactly what you will earn. If you sell early, rates can work for or against you.

For most savers, the choice comes down to three tools: a GIC for simple, insured savings, an individual bond for a fixed goal with a fixed date, and a bond ETF for a long-term portfolio. Compare all three before you choose, and use the compound interest calculator to see how the yield difference adds up.

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Frequently asked questions about bonds in Canada