Re: Real Return Bonds - Availability from BMO

"investmentpro_not" <[EMAIL PROTECTED]> wrote:

>"Greg Goss" <[EMAIL PROTECTED]> wrote
>>
>> "Stripped" Real return bonds are considerably rarer, but more
>> convenient.  I hold both 2026 whole RRB and stripped 2021 RRB in my
>> TDW account.
>>
>> If you can find 2021 strips, your entry
>> point can be much less.  My strips were bought for $3500 or so.
>
>I don't fully understand RRB,s. Could you explain just how these work (whole
>& stripped)?

Here is a good  reference for RRB.
http://www.bylo.org/rrbs.html

Here is my experience.

Stripped means that you don't get any interest along the way.  Think
of it like a compounding GIC.  All of your interest is represented by
the increase in value of the bond until the maturity date.  Thus, the
bond is sold at a severe discount to the face value.

Stripped bonds are more convenient in an RRSP saving for retirement
because you don't have to figure out what to do with the cash that
magically appears for the interest payment twice a year.

But stripped bonds can be rare.  I've only ever seen the 2021, and I
had trouble getting that.  No trouble geting whatever year I wanted of
the "whole" bond.


>Lets say I buy $20,000 in whole & same in stripped today. Say 2026 bonds.

I have $13,000 "face value" of 2026 whole bonds.  I paid $17,234.49
for them in September 2002.  TDW says that they're worth  $18,716.00
today, though you never get the listed value in an actual sale.  I
have received interest payments of $317 and $324  on them, on June 1
and Dec 1.  I'm almost due for another.  I don't know if that's
factored into the "worth" price.  If you buy these, the quoted price
won't show the pending interest, but you will hit it later.  You will
need to pay the seller the accrued interest to the point of sale.

I also have $5000 face value of 2021 stripped RRBs.  I paid 3,540.00
earlier this year.  TDW says that they're worth  $3,692.00 today.


>What will the return be in each case based on current interest and inflation
>rates?

About the same for both types.  The last time I looked, it was just
over 3% plus inflation.  The "fixed income desk" at your broker will
quote it that way.


>How often is interest distributed?

On whole bonds, twice a year.  On stripped bonds, someone else is
getting the interest.


>Can these be traded in the normal way?

"Normal" for bonds.  Your broker keeps a stock and sells them to you
for just over the listed price.  If you need to sell, they will
usually buy them for just under the listed price.  The difference
between the buy and sell price is called "the spread" and acts instead
of a commission.  TD tends to have a $5000 "face value" minimum for
any bond purchases in the broker.