Step-Up Bonds
Step-Up Bonds are high-quality issues, with above-market
interest rates and a coupon that increases over the life
of the bond. They may pay monthly, semi-annual or annual
interest payments. On the date of each coupon payment, the
issuer decides whether to call the bond at par, or whether
to extend it until the next payment date at the new coupon
rate.
Below is an example of a recent five year, annual pay RBC
Royal Bank Step-Up, maturing May 20, 2008. For the first
year, the investor will be paid a 4% coupon, payable May
2004. If the issuer chooses to extend the bond at that time,
the investor will be paid 4.25% for the next year. The process
is repeated until either the bond is called, or it matures.
Regardless of when the bond may be called, yields will comfortably
exceed those of similar term Government of Canada bonds.
In exchange for this enhanced coupon, the investor does
not have the right to redeem the bond. However, they may
be sold anytime at prevailing market rates.
Step-Up Bonds are structured by RBC Capital Markets on a
regular basis, using quality names such as RBC Royal Bank,
CIBC, EDC and Farm Credit. Issues are also available in US
dollars. The minimum purchase amount is $1000, and they are
eligible for registered plans.
Take Action: View our extensive inventory
of Step-Up bonds today to find an issue that meets your investment
needs.
Open a RBC Direct Investing account now.
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